License & Registration, Please

This story appears in the December 1996 issue of Startups. Subscribe »

Mike and Becky Busath were thrilled when sales took off right after they opened Stone Ground Bread Company, a specialty-bread bakery in San Antonio. All of their planning and research seemed to be paying off.

Just two months after they opened, however, one last snag nearly scuttled their plans: The city health department refused to give the Busaths a health permit until they'd received a permanent-occupancy permit from another city department. The problem was that their permanent-occupancy permit was held up in a seemingly endless round of city inspections of the bakery's equipment.

The city department was unsympathetic. The Busaths were told that they'd have to shut down if they didn't quickly meet permit requirements. Continuing to operate under a "grace period," the Busaths scrambled to make unanticipated--and costly--equipment changes in order to pass the equipment inspection. Disaster was averted just in the nick of time: They finally received the necessary permit the day before the city department's deadline.

The Busaths' cliffhanger-style tale highlights an often-overlooked aspect of starting your own business: complying with a host of local, state and federal regulations and requirements.

"Many new business owners don't worry about legal issues like permits, licenses and zoning," says Alan Schlact, a business law professor at Kennesaw State University in Georgia. "They wait until they get started and then run into problems before they find out what they need to do."

"You find out the answers the hard way sometimes," agrees Becky. "You need to ask as many questions about regulations, permits and licenses for your specific type of business as you can before you open."

Requirements vary from state to state, from city to city, and for different types of businesses, but here's a checklist of the most common types of legal regulations and requirements that new businesses must take into consideration:

1. Federal Employer Identification Number: If you plan on hiring employees, you need to let the IRS know by filing Form SS-4 (available from your local IRS office). You may also need to register with your state's Department of Labor.

2. Federal licenses and permits: Most small businesses won't need any federal licenses or permits, but there are some exceptions: interstate trucking companies, businesses that will be offering investment advice, and businesses involved with meat preparation.

3. Seller's permit: If you'll be purchasing wholesale merchandise for resale, your state will probably require you to register for a seller's permit or sales tax permit. Check with your state's Equalization Board, Sales Tax Commission, or Franchise Tax Board.

4. State licenses and permits: Call your state's Department of Commerce to see if your type of business will need a state license. Among those that probably will are building contractors, auto mechanics, hair dressers, and private investigators. Restaurants that serve alcohol will also require a state liquor license.

5. Local regulations: Again, local licensing requirements vary. Phone your city or county clerk's office for information about exactly what you'll need. If you'll be preparing food, you'll also need to call the governing health department. And, if you'll be doing any remodeling to a commercial space, check building codes to find out if you'll need to get a building permit.

6. Business name: If you'll be doing business under a name other than your own, you'll need to file a fictitious name certificate or a "Doing Business As" (DBA). Usually, this is done at the county level, and some states may also require you to publish a notice of the business name in your local newspaper.

7. Zoning laws: Don't sign a lease without first checking that the space is properly zoned for the use you have in mind. Some cities require all new businesses to get a zoning compliance permit before they begin operating. If you work from your home, verify local zoning ordinances covering homebased businesses. Don't assume that just because your neighbor is working from home, it's fine for you to do so, too. If you live in a condominium or planned community, make sure homebased businesses fall within the community's bylaws.

If you're not sure which agency in your city or state to contact for specific questions about what your business will require, start with unofficial sources of information. The Small Business Administration (SBA), your local chamber of commerce, trade associations, and even other businesspeople should be able to point you in the right direction. Even better, says Schlact, is to consult an attorney who has worked with your type of business before.

The road to success is fraught with potholes. Pay attention to the regulations and requirements, and you can keep your new business out of bureaucratic snafus on down the line.