You conceived a very promising business plan. You can almost see yourself building an empire in the near future. You searched for a good location. You made a terrific feasibility study. You gathered funds. You are so excited. You are all set. Or so you thought.
Starting a small business is not as easy as ABC. It is actually more than meets the eye. And surely, it is more complicated than you ever thought.
To be allowed to run your business smoothly, it also means to run it legally. To achieve this, there are many local, state, and federal permits and licenses you need to obtain before you can proceed as planned.
One of the things you need to consider is to know what size your business is because this would be the basis of the cost to get your business license.
Average Cost of Small Business License
The average reported filing fee for small business ranges from $50 to $400 or more, depending on the business activity you intend to put up.
Based on a survey conducted by the National Small Business Association or NSBA for 2017, the average expenditure of small businesses on federal regulations is around $5,000 on direct costs. Please note that not all small businesses are covered by federal regulations.
In terms of state and local regulations, the survey reveals an average of $1,000 for direct costs.
These figures represent the cost to get your business license and other regulatory requirements per year and may also include costs pertaining to employee regulations, Affordable Care Act, etc. But this is worth knowing since small businesses most likely will be going to take care of them eventually anyway.
Additional Costs
The following are the extra expenditures you will likely be spending apart from the small business license cost:
- Generally, business licenses are renewed annually, with exceptions based on areas and nature of business as some are renewed every 2 years or more.
- There are imposed penalties and surcharges for late renewal of business license.
- Background screening and fingerprinting may be required at a fee.
- In some cases, a state may charge a general licensing fee for those which are not exempt from state business licensing.
- There may be an additional processing fee of $25 or more depending on regulations of each locality, city, county or state.
Factors Affecting Cost of Small Business License
The cost to get your business license depends on several factors including:
- The issuing institution – the price of small business license cost depends on whether the issuing party is local, state, or federal licensing office.
- The business activity – the kind of business activity you do will generally be the basis of your business license fee. Several activities may fall into a category of a uniform license fee.
- Location – different areas impose varying rates of business license as these locations tend to have independent regulations apart from that of the state and the country as a whole.
- Type of Business Structure – sole proprietorship, partnership or corporation has varying levels of costs to put up which includes business licenses.
- The number of employees – this may be a factor in determining your business size.
- Average annual receipts – this is another factor in determining your business size not measured by the number of employees.
Where to Apply for Business License
For state permits and licenses, check out your own state’s requirements here. Within each state, there is a link directing you towards different local state revenue office.
To know whether your business will fall into the small business category, please check this link.
Types of Small Business Licenses
There are three types of business licenses depending on your business activity. These are the following:
- Federal license – this type of license is applicable if your business is involved in some activities heavily regulated by the federal government such as firearms and explosives, alcoholic beverages, maritime transportation, agriculture among others.
- State license – this license is applicable to some occupations and professionals. It also includes sales from vices like gambling and alcohol, as well sales from firearm and explosives.
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- Sales Tax License– Otherwise known as seller’s permit or certificate of authority. This type of license may vary, as each state have different rulings on the kinds of products and services that are taxable when sold so it is essential to check out the rules in the state where you will do your business.
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- Occupational licenses – professionals and practitioners are regulated by all states and thereby required to obtain and licenses to be able to do business. But whether your business will be required occupational license will depend on your state’s regulations.
- Local license – this pertains to local government permits and is applicable to all business entities operating within the city and county jurisdictions.
- Fire Department Permit – This type of permit may be required when your company will use flammable materials like paper manufacturing; is prone to fire like restaurants; or if your company will be open to the public or to a lot of people. On the other hand, it may not be required when your business is considered generally safe but there will just be a periodic inspection of the business premises to ensure compliance to fire safety standards.
- Air and Water Pollution Control Permit– when you venture into a business that could potentially have an impact on air and water safety, you will be required by the local government to secure this kind of permit. This may also be required as early as before the commencement of the construction of your office building or your designated warehouse.
- Sign Permit – some cities follow certain rules pertaining signage like the type of signs you are allowed to display, the size and sometimes even the lighting. To save you the trouble of having to produce a costly signage that you cannot even use, be sure to check out the regulations from your local government.
- Health Department Permits – This is especially important if you would venture into a food business. You will need to inquire your city or county health department on how to apply for this and how much. This typically costs around $25 depending on how big is your business and the equipment you will use.
- Building permit – this type of permit is required for building new office space or just remodeling existing ones. On top of this, you may also be required to get electrical and plumbing permits, among others, depending on the scope of work.
- Fire Department Permit – This type of permit may be required when your company will use flammable materials like paper manufacturing; is prone to fire like restaurants; or if your company will be open to the public or to a lot of people. On the other hand, it may not be required when your business is considered generally safe but there will just be a periodic inspection of the business premises to ensure compliance to fire safety standards.