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Hi Ed,
The whole shabang of starting a web development business -- or any business for that matter -- is a tall order for a post on a forum . . . but let's at least take on the issue of licensing.
I expect it varies considerably from location to location.
Here in California, it's no big deal -- not like being a plumber or a building contractor, etc. All one has to do is go down to the County Clerk, fill out some paperwork, pay a small fee, and then take that to City Hall for actual licensing (say you work from home; no big -- you'll probably have non zoning issues as long as you don't have clients coming over and your not putting up signage, and you'll just have to have owner of the property sign off if you are renting. I'm assuming some of this as you mentioned you are in college). You'll need to then take that to a local news paper and run a fictitious business name notice for four weeks.
You can then take your copy of the application from the County Clerk down to the bank and open up a business bank account (I would highly recommend that) and perhaps a business credit card and business line of credit. With that, then you can even get a merchant account too for the acceptance of credit cards (which you will need, unless you want to be all PayPal cheesy).
Really not a big deal.
Contact your local Small Business Development Center; they will get you off on the right foot.
As for starting a web design/development firm . . . that's fairly tall order. Would be happy to chat with you by phone for an hour or so some evening if you like. PM me if you are interested.
One thing I would definitely recommend though is to look for residual income opportunities and multiple streams of income. Sure you can make money on the side doing web design, but to make it an income you'll need a business plan that is based on more than working from contract to contract -- if for no other reason than to even out cashflow.
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