New businesses are legally required to obtain business licenses in many cities. Some entrepreneurs may be tempted to skip the business license application or put it off until they are making enough money to justify the cost. While it is unlikely that an entrepreneur will be caught operating without a license before her business takes off, it is important to meet licensing requirements before she opens her doors for the first time. In addition to making a business legal to operate, business licenses boost credibility and allow the entrepreneur to apply for citywide funding.
To receive a business license, a business must comply with all requirements of the city granting the license. Applying for a business license ensures that the new business owner's infrastructure, plans and policies are in line with city regulations. In addition, most cities legally require businesses to be licensed, so possessing a business license protects the owner against being shut down for having an illegal business.
Customers are often wary of new businesses. Prior to purchasing goods or services, particularly over the Internet, customers want to ensure that the business is legitimate. If the entrepreneur displays her business license in her store or on her company website, it helps reassure customers that they are dealing with a business and not a scam artist. Other businesses the entrepreneur deals with also may need to see the business license prior to doing business.
Many cities offer funding to new businesses, particularly start-up businesses. To qualify for funds, a business must possess a business license demonstrating that the city approves of the business venture.
From the point of view of the city issuing a license, business licenses are important because they provide a record of all businesses who may owe tax to the city. Many cities require license holders to pay quarterly taxes on merchandise sold in order to keep the license current. From entrepreneurs' point of view, business licenses are equally important because they allow them to easily keep up with taxes owed to the city, keeping them out of legal and financial trouble. In addition, many businesses must pay federal and state taxes on a quarterly basis; paying city taxes to keep the license current can help remind business owners to pay other taxes due.
BusinessNameUsa.com says that if an entrepreneur resells merchandise purchased elsewhere, he can get the merchandise at lower cost if he has a wholesale license. Wholesale licenses allow entrepreneurs to purchase items at the wholesale cost--the cost of producing the item--rather than at the price it sells for in stores. Entrepreneurs do not pay tax on items bought for resale; the customer pays tax when the item is resold. Many manufacturers require entrepreneurs to show them a wholesale license prior to selling items at discounted prices. This ensures that the entrepreneur is legitimate rather than someone trying to buy items for personal use at lower prices.