Starting A Small Business: Location And Licenses
By Amy Fontinelle
The type of business you're starting, the laws where you want to open your business, what you can afford and what suits your lifestyle will determine what options you have for your business location.
For many new small business owners, a home office makes the most sense. Most cities and towns will allow you to run a business out of your home as long as you meet certain criteria. Here are some examples of business situations where your city may not allow you to run your business from your home:
- Clients or customers will be visiting your home
- The business will be located in your garage
- You want to manufacture a product on your premises
- You want to repair vehicles on your premises
- You will have one or more employees
- The business will create a noise disturbance
- The business will occupy a large percentage of your home
A major benefit of using your home as your business location is that you won't waste any time commuting and you won't incur additional costs to rent an office space. The IRS also offers significant tax deductions for a home office used for your business.
A major drawback of working from home is that you can never truly leave work. Also, many types of businesses aren't suited to a home location. (Learn how having a good work area can contribute to your success in Creating A Home Business Work Space.)
A storefront gives you more than just a place to do business. With the right location and signage, it's also a form of advertising. If you're in the cupcake business, for example, you will likely have more customers if you sell cupcakes from a visible storefront rather than simply providing them for catered events. Of course, you'll have to determine whether the costs and extra work of running a store provide enough of a payoff. Running the store might detract from your catering work, or it might enhance it by bringing you more foot traffic and more potential catering customers. But you'll have additional costs from renting the space, paying utilities, securing additional permits and licenses, dealing with the health department and probably hiring at least one employee to help you attend to customers.
A storefront can also make sense for someone selling a service, like an accountant. But you'll have to be prepared to deal with interruptions from walk-in business and, again, be able to afford the extra expense.
If you provide a professional service like consulting, renting a space in an office building might make sense. It will allow clients to come to your office instead of you always having to go to them, and working outside the home means a greater separation between your work and home life. You are unlikely to have interruptions (or extra business) from walk-in customers. Although you will have to spend some time commuting, working outside your home also gives you more opportunities to meet people for networking.
Permits, Licenses and Business Registration
There are both federal and local requirements for business permits, licenses and registration. The requirements depend on what your business does and where it is located.
The only types of businesses that require a federal license are ones that fall under the supervision and regulations of a federal agency. Some of the types of business are listed below:
- Investment advising
- Drug manufacturing
- Preparation of meat products
- Fish and wildlife
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Ground transportation
- Selling alcohol, tobacco, or firearms
Your state will probably require you to have a business license for tax purposes. Depending on your line of work, you may need a state occupational license. Doctors, attorneys, real estate agents, insurance salesman and hairdressers - among others - commonly need an occupational license. If you want your business to sell liquor, lottery tickets, gasoline or firearms, you may need a special state license.
If your business will operate under a fictitious name, you will probably need a "doing business as" or DBA permit from your city. You may also need a basic business operation license from your city.
Certain businesses, such as manufacturing, require zoning and land use permits. Nightclubs and bars may require fire permits. If you'll be selling taxable merchandise, you'll need a sales tax license/seller's permit. If you'll be preparing or selling food, you'll likely need a health department permit.
And yes, almost all of these permits and licenses cost money. Some are flat fees and some are based on your business income, also known as gross receipts. The websites for your state and local government are a good place to find information on the permits, licenses and registration necessary to open and operate your small business. Calling your city hall is another good place to start.
Employer Identification Number (EIN)
You will need to apply for an employee identification number (EIN), also known as a taxpayer identification number, with the IRS if your business:
- Is a corporation or partnership
- Has employees
- Files employment, excise, alcohol, firearm or tobacco tax returns
- Has a Keogh plan (a type of small business retirement plan)
Your state may also require you to get a state tax identification number if your state has an income tax.
Now, we'll discuss whether you should hire employees for your new business. Starting A Small Business: Hiring Employees
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