Depending on the type of home business you start, its size and location, you may need one or more licenses and permits from one or more governments. Some businesses require more licenses than others. I’ll talk about general licensing requirements here and in the individual profiles. You should check with local government on other requirements.

Licenses, often a necessary nuisance, give you the right to operate a business as long as you follow the rules. Without them, anyone could set up a business on a street corner and rob customers of thousands of dollars without recourse. Though not perfect, business licensing systems reduce the chances of this happening and attempt to instill trust in buyers. Typically, state, county or municipal governments issue business licenses. Check your telephone book for government business licensing offices.

In addition to a business license, you may also need to file the name of your business. A fictitious or assumed business name is a name other than the real and true name of each person operating a business. A real and true name becomes an assumed business name with the addition of any words that imply the existence of additional owners. For example, Bob Smith is a real and true name, while Bob Smith Company is an assumed business name.

In many states, an assumed business name is registered with the state’s corporate division. Some states will also register your assumed business name with counties in which you do business. Other states require that you do so. In some locations, you must publish a public notice in an area newspaper announcing that you (and any other business principals) are operating under a specific business name.

The typical assumed business name registration requires the business name you wish to assume, the principal place of business, the name of an authorized representative, your SIC (Standard Industrial Classification) code (see Chapter 7 for a detailed explanation of SIC codes), a list of all owners with their signatures and a list of all counties in which your firm will transact business. Of course, there will also be a registration fee. To help, I’ll include the SIC code for many of the business profiles.

Some cottage companies also require professional licenses or permits. These may be required for those who buy, sell, build or repair houses; those who work with food and those who transport products for others. Your state business office can help you decide whether you need such a license or permit and will tell you how to apply for one. Some professions will also require special insurance or bonding. I’ll mention some of them in the profiles.

Your city or town may also have zoning regulations that limit the type of business that operates in a residential area. Most zoning laws simply limit potential traffic in a residential neighborhood. However, others discourage any type of business based in a home. Contact local zoning offices to find out what is allowed and what isn’t.

You will have to pay your governments for the privilege of running a cottage company. How much tax, to whom and when depend on what you sell, to whom you sell, how much you profit, whether you have inventory or employees and other factors. You may also be required to collect and pass along sales tax on your product or service.

One more item: Remember that under normal circumstances your home business won’t be covered under your homeowner’s insurance policy. Inventory you keep in the garage, extra computer equipment and the safety of customers typically require additional insurance. Once you’ve decided on your cottage company, talk with your insurance agent about extended coverage. Unless you sell fireworks, the cost shouldn’t be too high.

Now that we’ve discussed what you need to know before you start a home-based business, let’s take a look at how to find the best home business for you.