Taking your UK business abroad: What you need to know before launching your business in the USA
Photo by Ketut Subiyanto
In recent years, the UK has attracted record levels of foreign corporations to its shores. However, what about those UK-based businesses that want to expand to the U.S. markets? In recent months, shoppers have rallied around small businesses, enabling them to grow. For those businesses looking to grow their business, a common go-to option is to incorporate into another international market, like the U.S. With the U.S. being the largest consumer market in the world, successfully launching your business there can make an incredible difference in putting your brand on the map. However, many UK entrepreneurs hesitate at expanding their business this way thanks to the fear of too much red tape. When it comes to launching your business in the U.S. there are a few key things to bear in mind.
Should your SME expand to the U.S.?
While an international expansion may seem like the natural next step for a growing company, some businesses may choose to remain local because of the risks associated with such a move. However, launching your business in the U.S. can come with some hefty advantages- if done the right way.
Some of the benefits of launching a business in the U.S. include the perks of operating in a favorable economic environment where you may be able to access state, local, or federal incentives. This is because the government recognizes the need and important role of foreign investment in the U.S. and therefore they try to encourage foreign businesses to expand. As a non-resident business owner, you are also treated the same as resident owners which means there is no differentiation based on your status. However, your choice of business setup may impact your tax treatment. Last but certainly not least, expanding your business to the U.S. gives you access to one of the largest markets in the world. With multiple trade agreements in place and high visibility, it can be the perfect opportunity to put your brand in the international spotlight.
Decide on your approach to expansion
It is worth mentioning that the timing of your launch in the U.S. can make a difference. While some businesses choose to build their presence in the UK before branching out to the U.S., other companies opt to enter the U.S. market earlier on. Your choice and timing will heavily depend on how you intend on entering the market- whether through acquisition, organic growth, or even joint partnerships. Deciding on this early on will provide clarity as you develop your strategy for launching in the U.S. market.
Pick a state for your incorporation
Choosing a location is a great place to start your plan for launching your business in the U.S. Many other factors and influences will hedge on where you decide to base your business. For instance, each state has its state tax and corporate governance laws. You should also consider closeness to your intended target market, labor, distribution network, and local demand. When it comes to the best states to launch a business, the annual Wallet Hub List looks at things like business support, brain drain, and five-year business survival rates. In its most recent listing, Georgia, Texas, and California all ranked highly.
Choose the best business entity setup for your business
In the U.S. 2 main types of incorporation are recognized for non-resident entrepreneurs- general corporations and limited liability companies (LLCs). The business requirements will vary according to the type of business entity you choose. In Delaware, a popular state for overseas-based business incorporations, a corporation is required to have central management which means control of the corporation is vested in its board of directors. However, their approval is only required for significant transactions. For a Texas LLC, you will need a registered agent in Texas and file a Texas Franchise Tax Report every year. Before making a decision, ensure you weigh the advantages of both business entity set-ups and what it may mean for your business in the long run.
Clarify the tax obligations of your business
Your choice of business entity and location in the U.S. will also dictate your business’ tax treatment. Corporations are exposed to double taxation which means the corporation pays taxes on income earned and then its shareholders pay taxes on their dividends. On the other hand, limited liability companies have flow-through taxation which means the partners/owners are required to report their profits and pay taxes on that. Some states also have more favorable tax laws. For instance, Nevada and South Dakota have no corporate taxes.
Do you know the costs?
With any decision to expand your business comes associated costs. Expanding to a country like the U.S. will come with several costs you will need to budget for before launching your business there. For instance, there is the cost of acquiring business premises, whether it is leased or purchased. There is also the cost of securing local talent for your business in the U.S. To budget more accurately for these costs, it helps to narrow it down to the locations where you are considering launching your business in. For instance, the salary for a general manager in Colorado comes in at $61,908 per year while in New York it averages $76,755. Don’t forget supplementary costs like legal fees, inventory, and marketing costs. According to a study by Shopify, small business owners spend an average of $40,000 in the first year of business.
Launching your business in the U.S. is a huge step for any business. With a leading global market, it can put your business in the perfect position to achieve global success. However, before the global growth comes the preparation. Taking the time to research your options, enquire about your tax obligations and set up your business in the U.S. adequately can make all the difference in the end.