So you’re setting up your small business, and you’ve heard about getting licensed and certified. You’ve also heard about getting permits, certificates and registrations.
But what are all these terms, and which do you actually need?
It can be a little tricky. Some of these words have similar meanings, but there are important differences that every business owner should understand. Here’s our handy guide.
What is a small business license?
A license is a legal document, usually issued by a government agency, that allows you to work in your profession. Most small businesses need a license to operate, so it’s best to check your local legislation to determine if you need licensing.
If your state requires you to have a license, but you work without one, you could be fined or even risk jail time if you cause an accident or put others’ safety at risk.
In some cases, small business owners and freelancers can choose whether to get a license. For example, most states require massage therapists to have a license, but some states make it optional.
Even if a license isn’t required, having one signals to clients that you’re prepared and trustworthy — and that’s good for business.
What’s the difference between a license and a permit?
Licenses and permits are both legal documents issued by government agencies, but the way they work is slightly different.
A license is usually permanent and allows you to carry out a broad range of work. By contrast, permits usually have temporary validity and enable specific activities. For example, a general contractor carries a license that allows them to work but must get building permits from local authorities for each construction job.
One way to think about it is that a license is about whether you’re qualified to work, while a permit is about whether something is allowed to happen.
What is a small business certification?
A certification is a document that proves you have attained a certain qualification for your work. You usually have to take a course and pass an exam to get a certification.
For example, common safety certifications issued by the Occupational Safety and Health Administration (OSHA) can be obtained after taking a 10- or 30-hour course and passing a final exam. But other certification programs, like a master HVAC specialist certification, require years of on-the-job experience and passing both written and hands-on exams.
So do you still need certifications if you already have a license? Unlike with licenses, it’s typically not a legal requirement to have a certification to work. But many clients may strongly prefer or even require you to have certain certifications before hiring you — especially if the job is more advanced.
The bottom line is that certifications open doors. They prove your credentials to clients and customers by showing that you are a highly trained professional. Being certified can even qualify you to join certain professional associations, which expands your network and further increases your credibility.
What’s the difference between a certification and a certificate?
The word certificate sounds similar to a certification, but they’re not the same thing. In the context of professional training, a certificate is a document that proves you’ve completed a course or program, typically at an educational institution like a college or trade school. You’ll typically hear these referred to as “certificate programs.”
In many professions, having an educational certificate means you have acquired general knowledge, but doesn’t mean you can start working right away. From a legal standpoint, you’ll still need a license, and clients may want to see that you have relevant certifications.
What’s a business registration?
Even if you have a professional license and a few certifications, you’ll likely need to register your small business to operate legally. Check local, state, and federal laws to see what’s required in your industry.
Once you register your business, you’ll get a business reservation certificate — not to be confused with an educational or professional certification.
Do I need insurance?
So you’ve gotten licensed, certified and registered. That’s great! The last step is getting small business insurance to protect yourself and anyone else involved in your work.
In many industries, having insurance isn’t just a good idea; it’s a legal requirement. And many clients will only work with you if you’re covered.
The most important kind of coverage for small businesses is general liability insurance, which protects your business from all sorts of possible claims including bodily injury or damage to someone else’s property.
You’ll also need workers’ comp if you employ people and commercial property insurance if your business has a dedicated physical location.
You may also want to consider professional liability insurance, which can protect you if a client is unhappy with your work and you need to defend yourself.
Once you’re covered, you’ll be able to get a certificate of insurance (COI), which you can show clients and employers.
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