Why You Need a Business License

Business licenses can be confusing since they are muddled by the combination of federal, state, and local jurisdictions. However, with a bit of research, you can find the licensing requirements for your business.

What is a business license?

A business license is a government document that certifies a business is safe for the public. Exactly which kinds of licenses you require depends upon the kind of business you operate and where you operate it.

Unfortunately, no universal clearinghouse is available for all required licenses based on the nature of your business and your jurisdiction.

Who needs a business license?

Some businesses require no formal license. If you're going to sell T-shirts for your band at gigs, then you don't need a license. However, if you want to open a diner, then you have to comply with local food-safety codes and open your kitchen to a health inspector. The difference is clear—a defective T-shirt sold by a band on the road is a much smaller problem than food poisoning from a place in your neighborhood.

It's that risk of harm that explains why a diner needs a license to operate. That is also why barbershops, construction firms, and tattoo parlors have specific license requirements.

What about the practice of medicine or law? In every jurisdiction, licenses for doctors and lawyers are handled by more specialized state officials instead of local offices. What about creating new drugs, transport of nuclear waste, or operating an airline? With their highly specialized operation and enormous risk, those businesses are handled by federal offices staffed with scientific experts.

Why do I need a business license?

Licenses help ensure that businesses are safe for the public. Restaurants should be clean. Lawyers and doctors should be professional and accountable. New drugs should be safe and effective.

You can sometimes tell when a restaurant is not sufficiently clean. The dishes may be dirty, or the staff may be careless. You cannot be certain of its safety short of breezing into the kitchen and testing the cooler and the burners.

It is harder to know whether an airplane engine is poorly maintained or if a drug didn't show efficacy in a clinical trial. Agencies like the Federal Aviation Administration (FAA) and Food and Drug Administration (FDA) have staff who know where to look and how to make sure the companies that run airlines and manufacture drugs have ultimately shown that their products and services are safe.

Just like a safety inspector has to go into the kitchen to know a restaurant is clean, scientists at the FDA or the engineers at the FAA must examine the data—every experiment and every maintenance log—to ensure that the businesses are operating safely.

How do I get a business license?

A good place to start is to call your mayor's office, county administrator, and state's secretary of state. Also, call on your support network. Your professional trade groups, colleagues, and even your social network may help you determine the licenses you need.

Generally, the more specialized your business and the more technical know-how required, the larger the government organizations you need to work with. Agencies like the FAA and FDA have outreach programs to explain their processes.

Obtaining the license you need for your business requires some planning and effort. With a basic understanding of the different levels of government and a clear sense of what your business is going to do, you can get your business legally up and running.