Expansion was the last thing on most business owners’ minds after the pandemic struck. However, times have moved on, and many businesses are once again thriving.
Business expansion into different states presents new challenges, but also a number of benefits. Untapped customer bases can be accessed along with new markets. With a successful expansion, greater sales opportunities will be realized. Along with revenue growth.
Taking professional advice and that of peers can help businesses avoid the pitfalls of expansion. Joseph Taylor, owner of PDX Renovations Vancouver, says “business expansion across different states brings unique opportunities and with them new obstacles to be overcome”. But, when expansion is properly executed, the gains can be huge.
What are the benefits of business expansion?
Expansion into new states brings the chance to diversify. And to enter new markets. Sometimes, playing it cautiously is the right choice. But, there are many benefits to gain from expanding into different states.
The benefits of expanding into different states include the following:
- Tax incentives
- Enhanced brand awareness
- Less reliance on one market
- Access to more talent
- New opportunities
- Network expansion
- Risk mitigation
- Increased sustainability
- Cost savings
Different states may bring certain tax incentives along with new business opportunities. Some states offer incentives for businesses to set up home too. Many states such as Nevada offer rebates and cash grants to attract businesses.
Less reliance on one market
Expanding into other states will let your business diversify its operations. Currently, your business may be reliant on one market. Expansion reduces the risks that come with regional market fluctuations.
For instance, if your business is in the property investment game, you might see a slump in house sales in one state, but a surge in another. This helps to mitigate the risks your business faces with market changes.
Access to a wider pool of talent
The US is home to a wide range of talented and skilled workers. Moving into different states will allow you to utilize expertise perhaps not available in your home state.
Long-term sustainability
Expanding across different states could make your business more sustainable. You will remove the dependency you have on being in a single location. And you can diversify revenue streams.
However, business growth should happen at the right time. Many businesses fail in the first 18 months due to a lack of cash. Expanding too fast could result in you stretching your resources too thin.
Network expansion
One benefit of expanding into another state is the chance to broaden your business network. Expansion brings with it the opportunity to network with new suppliers and partners.
Cost savings
Your business expansion may allow you to consolidate resources. And you can negotiate new supplier contracts. Potentially, an expansion could lead to more streamlined operations and cost savings.
What types of businesses should consider expansion across state lines?
Understanding different markets is essential. Many large businesses have failed when they expanded into new territories due to poor market research. Taco Bell’s expansion across borders into Mexico is a great example of a company failing to do due diligence.
Typically, a franchise business such as Taco Bell should do well in other states. But, market research is essential to find out what demand there is for your business.
Many business owners will self-finance their expansion. Reinvesting in your business for growth is a great idea if your business is suitable. House flipping is a perfect example of this. Distressed properties can be bought and fixed up. Once the home is sold for a profit, the money is reinvested and the business grows.
Examples of businesses that are ideal to cross state lines include:
- Franchise businesses
- Property investment & development
- Professional services (law, accounting, etc)
- Food chains
- Training services
- Hotels and resorts
Businesses such as plumbers and locksmiths could expand from one location to cover a wider area. This could be done by opening new operations or through franchising. Before your business can expand, some work has to be done.
What do you need to do before expanding into another state?
Much of what you need to do to make a successful expansion into different states has been mentioned above. However, it bears looking at again.
Market assessment
An essential part of your expansion plan should be a comprehensive assessment of your potential markets. Before any expansion can be made you need to look at the state and the particular area you wish to expand into. This means assessing what demand there is for your business, and who your competitors are.
Consumer behavior
Part of assessing any market is understanding who your consumers will be. Customer behavior will vary across different states. There will be cultural and demographic differences to contend with. And consumers in one state may have different preferences from people in another.
Arrange financing
Finances must be available before expansion occurs. Do you have the funds to set up a new branch of your business and support it while it takes time to become established? If not, then you’re not ready to expand.
Identify states with potential growth
A key part of a successful expansion is identifying those states where your business can flourish. The USA up and coming areas include Round Rock, Texas, and Green Bay, Wisconsin. Being able to spot areas with potential growth would benefit many types of businesses, especially property developers.
Challenges facing business expansion into other states
One of the biggest challenges to expansion is to establish an actual physical presence in another state. You must register your business with the appropriate state agencies. You may also need a state-registered agent to handle legal documents.
Then, of course, you will have to secure an actual building for your operations. Local permits will need to be obtained. And registration for state tax must be completed. You may also need to open a local bank account.
Other challenges include:
- Understanding state laws
- Adapting to local employment laws
- Developing state-specific marketing strategies
- Logistics and interstate supply chains
There may be state labor laws that differ from what you are used to. And you will certainly have to familiarize yourself with state tax laws for each of your expansions. This may mean hiring local tax advisors for each new state you move into.
How do states differ with regulations and tax laws?
One consideration when choosing where to expand should be the local tax regulations. It is worth researching the best and worst states for business tax and how you will be affected. There are incentives to consider also.
In some states, income tax credits are granted to new businesses. These incentives depend on certain factors such as job creation. Capital investment will also be a factor.
Incentives include modified business tax abatement, and sales and use tax abatement. Nearly all states in the US offer valuable tax incentives to win new business for their cities and towns.
Summary
Moving into different states could lead to continual growth over the coming years. As long as you carry out your due diligence and understand the challenges involved, new markets will open up for your business.
New opportunities mean the chance for increased revenue and further growth. But, expansion into different states isn’t free and easy. You will need to understand state labor laws and different tax regulations. However, you could benefit from diversifying your business and creating long-term sustainability.
