Do You Know the Risks and Opportunities of Expanding to Another State?

By nature, business owners are goal setters and innovators. They embrace the challenge to turn vision into reality. As your business grows locally, you might begin to think about expanding to another state as the next step. Whether that move is imminent or is part of a long-term goal, preparing for it requires that you think back and reassess the steps you took when you first started your business.

In particular, if you are expanding your business across state lines, it’s absolutely critical to take the time to address a few key factors that could as easily become risks or opportunities, depending on how well you manage each one.

Consumer Need

Expanding into a new state is expensive. It requires you to comply with numerous regulations. The first step in deciding whether to expand is to determine if there is a real consumer need. Because of the added expense of expansion, there should be a need for your business that promises to increase your profitability.

Ask This:

• Is there truly a need for your business product in the state?
• Are you expanding because the economy is growing?

Licensing

Each state has its own licensing and permit requirements. You will need to register with the state Secretary of State’s where you are planning to expand. This registration will be in addition to your home state. In addition, each state and local jurisdiction has different permits for the type of business conducted. Some jurisdictions require one permit and others require several.

Ask This:

• What business will you be conducting in the new state?

Workforce Availability

It’s likely that your business has earned a healthy reputation in your home state. That equity helps you to attract employees who already know who you are, who are more likely to fit within your unique environment, and who can meet your needs. Moving into a new market may require extra effort to find a workforce that resembles your current team and culture. Having a workforce that has the same values and desires as your home office workforce will lead to a more unified workforce. This will help your employees have more of sense of belonging. The two groups will not feel separate.

Ask This:

• Are there current employees who are willing to help you establish and lead the new office?
• Is there an adequate workforce in the area to support your need?

Visibility and Collaboration

When you manage various locations, the distance can create a sense of isolation or disconnect within the workforce. You need to put the right resources in place to make sure that your employees (particularly new ones) are able to be contributing members of the team. 

Ask this:

• What resources can you engage to help team members collaborate and engage with one another?
• How can you have real-time visibility into the work being done at other locations?

Tax Requirements

Each state has its own tax requirements. The states vary on each range of the spectrum of what returns need to be filed. In addition, the tax rate for each type of tax varies between taxing jurisdictions. Before moving into a new market, you have to ensure you can comply with state taxes and local taxing jurisdictions. Failing to comply with the tax implications can result in costly penalties.

Ask this:

• Am I in compliance with the state and local tax requirements, such as, unemployment, payroll withholding, and personal property tax?
• Have I evaluated the impact of the new state’s income and franchise tax?
• What does filing a new state return do to my current state tax situation?

As you think through your expansion plan, consider what gaps you have in your planning, and how you can lay a foundation before embarking on the move. It’s wise to elicit the help of financial and legal advisors who can help you to answer the questions, weigh your options and prepare the necessary documents for legal filings and accounting structures. Make sure you understand the specifics of your current and evolving structure, and you will be equipped to expand with confidence.

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