Key takeaways:
- While managing business licenses internally can provide control and direct oversight, it is advisable to use business license software instead of spreadsheets to enhance workflow efficiency and accuracy. Having dedicated resources is crucial for handling license compliance issues effectively.
- Outsourcing business license management can free up internal bandwidth, allowing staff to focus on core business activities and strategic initiatives. It also provides flexibility to scale services according to business needs and ensures that licenses are managed by experts, minimizing the risk of non-compliance and potential penalties.
All businesses are required to meet legal obligations throughout their lifecycle. These obligations include federal, state, and local taxes, business registration, employment requirements, as well as necessary licenses and permits.
Failing to comply with business license requirements can result in fees and penalties. Additionally, your business may face challenges in achieving its strategic goals. For instance, non-compliance can delay the expansion of product or service lines, or hinder mergers and acquisitions (M&A). Another consequence is potential damage to your brand's reputation.
Many businesses opt to manage business license compliance in-house or hire a service provider to handle it. Another option is to use a hybrid approach that combines both self-managed and outsourced business license managed services.
This article explores the three options to help determine the right approach for your business.
The complexity of business license compliance
Business licensing is complex and involves various federal and state regulations, as well as county, city, and town laws. Businesses must navigate over 75,000 federal, state, and local jurisdictions.
Not only are these requirements extensive, but they are also fast evolving. An estimated 60% of license and permit registrations have some type of requirements change (e.g. fees, forms, process) annually.
The nature of your business also determines the complexity of maintaining compliance. If you operate in multiple jurisdictions, you must track all entities. This includes existing requirements, evolving requirements, and any entity changes that trigger new licensing obligations.
Some events necessitate additional licensing work. These events include instances when the company name changes, the introduction of new products or services, and expansion, which involves identifying where the company has nexus and what qualifies as doing business. Other important events are changes in management or ownership, moving to a new address, opening or closing offices, and any changes in regulations.
Business licensing compliance is an administrative task. This process involves tracking when licenses expire, preparing applications, managing funds, and submitting renewals to a government agency on time, either by mail or online. For industries with strict regulations, you need extra expertise to follow the detailed reporting and documentation rules.
