Part 8

[24] (Part 8: Small Business Licensing & Insurance: Quick Overview) De-Risk Your Biz: Minimum Small Business Legal Requirements

Licensing

Another area to think about for de-risking your small business is licensing. Ask yourself, other than paying taxes, how else might your company need to interact with the government (whether local, state or federal)? Regulation. In other words, what standard does the government impose on you about how you run your business? What check-ups might the government want to make periodically to make sure you are operating in compliance with applicable regulations?

Let’s start by asking: what are the most regulated business sectors? Naturally, areas like healthcare, insurance, banking, and financial services come to mind. Plus, there are the so-called “vice” industries such as alcoholic beverages, tobacco and firearms. Then there’s anything that has a direct impact on the environment such as energy, fuel, oil & gas and manufacturing business who may have negative environmental impact. All of these sectors are regulated by a patchwork of rules at the federal, state and even local levels. If you operate in any of these industries, you’ll need to make a deeper dive and get specialized counsel on which licenses you need to remain in compliance. 

Thankfully, there are plenty of business sectors within the United States that are lightly regulated, if at all. Oftentimes, simple services business or software businesses don’t require any licensing to begin operating. Consumer products companies similarly may only be lightly regulated, although licensing requirements increase when you are producing things for actual human consumption (i.e. food & beverage). 

Some states and local jurisdictions may require you to obtain a basic permit just so that your business is registered locally and at the state level, but these undertakings are usually straightforward and may not require specialized legal advice to complete.

In general, most businesses are required to: (a) make annual filings with the Secretary of State to keep general corporate information up to date, and (b) carry some kind of worker’s compensation insurance when and if you hire employees. 

Here are some helpful guides on state-level business licenses which should help you start your own analysis:

https://www.constantcontact.com/blog/state-business-licenses/

https://www.nerdwallet.com/article/small-business/how-to-get-a-business-license

Insurance

Last but not least, a great way to de-risk your business is to obtain, at minimum, a general commercial liability insurance policy. These policies usually cover you for unintentional negligence or accidents. For example, a customer or visitor gets hurt while on your premises. Or, someone claims that you are falsely advertising your products and suffers damages. These are coverages that are usually included in a provider’s basic policy, and then you can add on other coverages depending on the type of business you have. 

Nearly every major insurance carrier provides these types of policies, and the premiums are normally affordable and well-worth the cost. 

I always advise business owners to spend a few minutes with an insurance broker who can analyze your business’ activities, explain what coverages they have that may be applicable, and quote the costs of premiums. 

Before you enter any policy, be sure to read the exclusions and understand the claims submission process. Typically, coverage won’t kick in until you’ve received some kind of demand for payment from someone or a lawsuit has commenced. Generally, I’m a fan of companies having these basic coverages in place to take care of the broader risks and give you a bit more comfort in case something random happens.  

In the next and final post, we’ll wrap up our overview of how to de-risk your business.

De-Risk Your Biz: Minimum Small Business Legal Requirements