Starting a business is never a cakewalk. You need to invest a lot of time, money, and effort even before the business commences. Once you launch the business, you need to work around the clock to ensure that your business is a success. When the business is small, it will mostly get customers through word-of-mouth and goodwill. Your neighbourhood will play a significant role in helping to grow your business.
But as the business grows, you will need to adhere to several government regulations to continue operations. Some of these regulations include getting approvals and licenses. These are particularly applicable for medical, pharmaceutical, liquor, and food businesses, as they directly impact the environment and health of people. In this article, we will discuss what is a business license and why do you need it?
What is a Business License?
A business license is a permit issued by the local government to an individual or a company to conduct business within a specific geographical area. It is not the same as getting your business registered.
The kind of license your business needs depends on the type of product/service the business offers. Construction firms and salons require a different type of license from the one that a restaurant needs. Similarly, doctors, lawyers, drug makers, nuclear waste transporters, and airlines require specialized licenses.
Why Do You Need a Business License?
Even though every business doesn’t need a license, it is always better to get one. If you sell clothes from your house, you do not need a business license. But if your business sells a product or service for human consumption (like food or cosmetics), a business license is recommended. In most cases, authorities conduct an annual or biannual inspection of license holders to confirm they abide by the safety and other standards. Obtaining a license may look like a hassle, but it protects employees, customers, and businesses in case of conflicts.
There are Several Benefits of Getting a Business License.
Business License Protects You Legally
One of the biggest reasons to get a license is to legalize your business. If you get a business license, nobody can accuse you of running an illegal business. For instance, Mark and Kevin run fast-food outlets on the same street. Mark has a business license, while Kevin does not. If the regulatory authorities conduct an audit, Kevin’s store is at risk of being closed for selling food without a license.
Several provinces offer tax subsidies if you get a license for your business. In the above example, since Mark’s business is licensed, he will get subsidies that will eventually reduce his tax bill. If you have long-term plans for your business, it is safe and economical to get a license.
Increases Credibility and Customer Trust
A license gives your business higher credibility. Customers always prefer to buy products from companies or individuals that have registered their business and have a license. It gives them the surety that the business is government approved, and is not a scam. You can display your license in your store/office to make customers aware of the same. In the example of Mark and Kevin, if Mark puts the license in his food store, customers will prefer to visit his store than Kevin’s store.
Investors Prefer Businesses With a License
A business license also helps you raise capital. Once your business starts growing, you will need funds. Investors will be more comfortable investing in or partnering with a licensed business than a non-licensed one. They will feel assured that you are serious about your business and will not run away with their money.
Business License Protects Your Personal Funds
Getting a license means that you and your business are two separate entities. It also separates your finances and liabilities from the assets and liabilities of the business. This means that if an employee gets injured while carrying out a business activity, you will not be required to settle the matter from your personal finances. Similarly, if you incur a personal loss, you cannot use business funds to pay off losses.
Continuing with the above example of Mark and Kevin, the pandemic reduced sales of both their businesses as people refrained from ordering outside food. To boost sales, they offered free home-delivery services. An employee of Mark’s business met with an accident while making a delivery. Mark can compensate the employee using the business fund, and his personal fund remains untouched. If the same happens with Kevin, he will have to compensate the employee from his personal funds if the business does not have enough cash in hand.
Time to Get a Business License
Many people dream of having their own business and even invest their savings to make it come true. You don’t want to end your dream before achieving its ultimate goal. A business license will ensure that your dream does not end mid-way because of issues like failure to funds or customers. Get a business license and give a strong foundation for your dreams. The type of license your business needs will depend on the nature of the business and the area of operation. Get expert advice to make the whole process of getting a business license hassle-free.
Contact Edelkoort Smethurst Schein CPAs LLP in Burlington, to discuss what is required for your business license, or if you require the services of a dedicated consultant to assist with tax planning to achieve your long-term goals. To speak with one of our knowledgeable Chartered Professional Accountants, please contact us online or by telephone at 905-517-2297.