Individuals who want to start home-based businesses are often so eager to get underway that they omit a critical step: making sure they have all the requisite licenses and permits to legally operate their new business. This can cause major problems in the future. The last thing you want is to get your business up and successfully running, only to have it suddenly shut down by a government authority because you lack a necessary permit. It's well worth the required time and minor investment to make sure that you have all business licensing squared away right from the start.

Specific licensing, zoning, and permit requirements vary according to locality, so check with the Small Business Administration (SBA) to obtain specific requirements for your state. However, the basic licensing and permit requirements are fairly consistent from one state to another. Here are the five you need to know about.

Key Takeaways

  • Before starting a business out of your basement or home office, be sure that all of your regulatory boxes have been checked off to operate legally.
  • Many types of business require a state-issued license.
  • Sometimes professional organizations require a license to practice.
  • You may require permits if customers will be frequenting your home; a home business may also need to be set up to pay sales taxes.

1. General Business License

Any type of business, including home-based businesses, must obtain a local city or county business license. This is a basic license to engage in business activities within the local jurisdiction. If your city or county doesn't have a specific business licensing department, you can obtain information on obtaining a basic business license at your local tax office. The license may be designated as a business tax certificate, reseller's certificate, or license.

In addition to obtaining a general business license, check that your business is in compliance with local zoning ordinances. Sometimes this is certified when you apply for your business license, but in other areas, you need to double-check with the city or county zoning department. Neighborhoods, usually in the form of homeowners associations, also tend to have restrictions on the operation of home businesses. If your business does not meet local zoning ordinances or neighborhood requirements, it is possible to obtain an exception or variance, but go through the proper channels to do so.

2. Professional License

Certain types of home-based businesses, such as daycare centers, hairstyling, legal services, or financial advisor services, require state or federal professional licensing or certification. Contact your state business office or visit the official state website to obtain a list of all occupations or businesses that require professional licensing.

3. Health and Safety Permits

Depending on the type of business you intend to operate, you may need to get an inspection and permit from the local fire department. This is most commonly required if customers or clients actually come to your home to conduct business. It's not usually required if your home-based business only provides goods or services online unless you keep an inventory of potentially flammable products at your home.

Less commonly required are environmental licenses or health department permits. Such licenses or permits are most commonly required for businesses engaged in the wholesale or retail selling of food and beverage products. In any event, it's easy enough to check with state environmental protection agencies or local health departments to find out if your business requires any type of environmental inspection or permit.

In some jurisdictions, operating a business without a proper sales tax license is a criminal violation.

4. Sign Permit

If you're planning to put out a sign where you live to advertise your business, make certain that you are in compliance with all local ordinances. Nearly all cities or counties have specific sign ordinances in effect that govern the size, type, and location of business signs. Lighting of signs is also usually restricted. In addition to city or county laws, many homeowners associations, condos, and apartment complexes have their own restrictions on commercial signs. If you own your home, look over your deed and check with your homeowners association. If you rent, obtain permission from your landlord.

5. Sales Tax License

In some localities, a sales tax license is part of the general business license. However, in other areas, a separate sales tax license is required in addition to a local business license. The local department from which you obtain a business license can tell you if you must obtain a separate sales tax license and where to get it at either the state or local level. Make sure that you have this covered before you open your business.