26% of all startups in the USA in 2018 were in wholesale and retail. The retail industry is a booming business many entrepreneurs — especially novices — are enthusiastic to try their hand at.
It’s relatively easy to start and develop if you put dedication and hard work into it.
However, many entrepreneurs struggle with the legal aspect of starting a business, which can hold them back even after starting it.
We’ve come up with a handy guide to help you easily understand the legal requirements of starting your own retail store. Read on to know and get going with your retail store.
Retail 101: Legal Requirements For Opening A Retail Store
Around 5.4 million applications were received to start a business in 2021. The number is usually the same give or take a few every year.
Millions of people are starting their businesses. It’s not unreasonable to assume that not all of them are well-versed in the legal aspect of it.
This is to say that if you’re one of the people who are not very informed about the legality of starting a business, you’re not alone.
There are two things you can do to tackle this issue. The first is to hire external help in the form of consultants.
They will help you understand your legal obligations and the most efficient ways to accomplish them.
The other is to educate yourself and do it yourself. We suggest opting for a middle ground between the two options.
Consultants can be of tremendous help in figuring out the legal process with their expert services.
But that doesn’t mean you shouldn’t educate yourself on your roles, responsibilities, and duties. You need to have the basic knowledge to know what to do at all times.
Let’s take a look at the most important legal requirements of opening a retail store.
Usually, the planning for starting a business begins with figuring out its nature and scope.
However, as we’re already decided on the business being a retail store, those details are more or less understood/decided beforehand.
What we need to focus on now is the intricacies such as an accounting structure.
This is what sets the foundation of your entire business so you need to choose it wisely.
Retail accounting deals largely with inventory and selling prices but also includes receipt management.
You need to decide on an accounting platform, a point of sale (POS) system, and an accounting structure for the inventory.
Here is a guide to help you learn more about accounting for retail businesses.
A.) Accounting Structure
You will need to decide whether you want to run your inventory on a first in first out (FIFO) or a last in first out (LIFO) basis.
This depends on the products you sell. If you sell food items, you shall opt for FIFO to deal with the food items before they go bad.
If you deal with say, electronics, you might want to opt on a LIFO basis as the demand for the latest tech is always going to be more.
Whatever mode you choose is what processing systems will use to process your sales.
B.) POS System
A point-of-sale system helps you with two major aspects of retail accounting: payment processing and inventory management.
Choose a POS that supports a wide variety of payment options such as credit cards, debit cards, mobile payments, etc.
A cloud-based POS system is lightweight and easier to manage. However, you may opt for a heavier system if you need more dense processing from it.
Lastly, look for additional features in the platform such as reporting, analytics, and inventory processing for efficient accounting.
C.) Accounting Platform
An accounting system is a must for any retail business. Connect it to your POS system so that the POS can record the day-to-day transactions and submit them to the accounting system.
The accounting system will then process them and keep them organized for further processing.
This will tremendously ease the filing and organizing of receipts and transactions for compliance and tax needs.
Though you need a POS and accounting system that are compatible with one another to ensure a smooth flow.
2.) License And Permits
As a retail store entrepreneur, you will need quite a few licenses and permits to be able to legally run your establishment.
You’ll need to obtain them from your local authorities, state authorities, and federal authorities along with authorities in your industry.
The number of permits you obtain will also depend on the types of products you sell in your store.
For example, if you wish to sell alcohol in your store, you’ll need to get a permit for that. If not, there is no need for it.
Here are the most important and basic permits and licenses you’ll need for a retail store:
- Employer Identification Number (EIN) — Also called the business number, the EIN acts as the social security number for your business. It’s your special identity that is used in further legal processes and documents..
This is why EIN is usually the first thing you shall get when starting a business. It’s extremely easy to get as well. Apply on the IRS website for it and you will receive it as soon as you submit your application.
- Seller’s permit — A seller’s permit identifies you as an establishment or entity that sells products and services within a state’s boundaries and collects sales tax on them.
As you know, sales tax is a state’s prospect and is, therefore, dealt with by state authorities. To get a seller’s permit, visit your state’s department or their revenue site and enroll.
- Certificate of Occupancy — A CO indicates that the establishment of your store is built with compliance to building codes and laws and is safe to be visited by customers and employees to work in.
It authenticates the physical establishment of your store. It is given by the local government, meaning you’ll have to contact the building department or department of housing to obtain it.
- Resale Certificate — A resale certificate is of utmost importance for a retail establishment. As a retailer, you’ll need to purchase goods from sellers, wholesalers, and manufacturers and resell them to your customers.
Having a resale certificate allows you to buy products without paying tax to the seller. You’ll need to contact your local authorities that issue it to be able to obtain it.
- Others – To make sure you don’t miss out on any licenses and permits, consult your legal consultant.
Moreover, you shall contact the local, state, and federal authorities via their websites or in person to know about any specific licenses you need to have.
3.) Intellectual Property
Many retail store entrepreneurs wrongly assume that since their business involves buying and selling other’s products, they don’t need IP protection.
Even though you don’t create any product per se, you still need to protect your IP: your store and its brand image.
Your store in itself is an IP. It offers a unique experience to its customers as well as employees.
For example, an Apple store or a Best Buy have goodwill on their own. This is why it becomes important to protect your store’s intellectual property.
There are three major ways to do it: trademarks, copyrights, and patents. Copyrights protect written and artistic works.
These will include your slogans and logos. Trademarks protect words, phrases, and symbols that are associated with your brand.
This once again includes logos, slogans, and any mascots that you may use for marketing purposes. Patents protect inventions of any kind.
So, if there is a process or activity that you perform differently in your store that is unique to it, you may want to patent it.
The last of your retail requirements that you need to cover before you open your store is insurance.
Now, there are many kinds of insurance available today, but you need to pick the ones that suit your needs.
Here are the common insurance for retail stores:
- Commercial general liability insurance — a general cover that deals with day-to-day operation.
- Commercial property insurance — protects the property owned by your business.
- Workers’ compensation insurance — protects your employees on the job.
- Commercial auto insurance — covers the vehicles you use for delivery and logistics.
- Cyber insurance —funds your losses in case of data breaches.
- Business interruption insurance — If your store cannot operate for a certain time due to any reason, this insurance covers you.
Get Well-versed In Your Obligations To Ace The Legal Game Of Your Retail Store
Opening a retail store can be an exciting prospect. However, fulfilling your legal obligations regarding it is not something most entrepreneurs look forward to. That said, ignoring them is not a solution either.
To ace your legal game, begin by educating yourself about the basics of your legal obligations. Hire consultants to help you understand your legal needs better.
Take a look at aspects such as accounting, licensing, IP protection, and insurance to cover every base.
Let us know in the comments what you think are the most important aspects of a business’s legal formalities.