Business Expansion: United States

One important question a business needs to ask before expanding their business abroad is the following. What differentiates the product or service from other businesses? Once that question is answered and a business is aware what makes them stand out. The rest of the process for expansion simply requires patience and determination.

The region of Osnabrück, Emsland, and Grafschaft Bentheim already has more than 250 businesses who regularly export/import with the US. Many businesses have found success by diversifying their business, your business could be the next success story. To quote the German American Chamber of Commerce (AHK), “failures are usually not grounded in the business idea itself, but in insufficient information and preparation.” The following information is for your benefit, with examples and resources to continue a more in depth look at some of the planning required to be a success in the US.

The US covers a lot of land mass so finding the right location is key. Each state operates with different laws and regulations, as well as, each city can have unique city ordinances.  Federal and state, laws and regulations are available with the links provided.

The US has a long list of basic business laws and regulations. USA.gov has an extensive list of resources for businesses, starting with business and copyright laws. As well as, child welfare, education, immigration and citizenship, and many more.

Each state can have unique regulations on business. State regulations can greatly influence the business’ decision whether or not the business will choose to operate in that state. The state comparison tables made by the Tax Foundation, provide a glimpse at some of the state differences when it comes to taxes, burdens, and debt. Fiscal 50: State Trends and Analysis from the PEW Charitable Trusts, focuses on “key fiscal, economic, and demographic trends in the 50 states.”

A business’ business structure effects quite a few things. One of those being, the amount of tax the business needs to pay. The business structure also dictates the paperwork that must be filed with the state which will then allow the business to operate. Sole proprietorship, partnership, Limited Liability Company (LLC), or corporations are among the options for business structures to choose from.

The amount of business income tax which must be paid depends on the business structure. Income tax is the total profit that the business makes within the tax year. The 2020 Federal Tax Bracket for personal income tax can be found here. The 2020 State Tax Bracket for personal income tax can be found here. The US international tax rates and forms can be found here.

A state comparison of tax freedom made by the Tax Foundation, shows how each state stacks up to each other. They have over 40 tables depicting the variations between each state. To list a few of the topics the tables cover; state revenue per capita, property taxes paid, and state gross receipts.

 Retail sales tax varies from state to state. The Tax Foundation website shows what each state has implemented. Retail sales tax is the tax, business to consumer (B2C) companies or individual consumers are responsible for paying. Which depends on the state and on the product(s) and service(s) provided.

A benefit of starting a business in the US in relation to taxes, is the startup costs can be distributed over a 15 year period with a maximum of $5,000 a year in the form of a tax deduction. A maximum amount of $50,000 is currently in place that can be deducted from taxes for start-up costs. If the total amount of business startup costs exceeds the benchmark of $55,000 the ability to utilize the deduction on taxes is no longer available for the business. An additional one time deduction of $5,000 can be deducted from taxes during the first year as organizational expenses, according to the Tax Foundation.

This information is pertinent to businesses in regards to employee salaries and benefits. Employees’ salaries can have a large impact on the amount of revenue a business requires to ensure an efficient profit margin. The startup costs can also be effected by the cost of living that a city has. For example, the amount of startup capital that a business would need to start a business in Seattle, Washington is very different from the amount of capital needed for a city like Indianapolis, Indiana.

The Cost of Living Index (COLI) is a theoretical price index that estimates the cost of living. What is best suited for this situation is a comparison of regions. Bankrate has an efficient COLI comparison calculator. The calculator shows the different standards of living between two cities in the US when it comes to income. It gives analysis on topics, such as: housing, food, and lifestyle.  For other COLI related resources please refer to the US Department of State. This will assist to better calculate of the amount businesses will need to pay employee wages.

Although transportation costs will not be detrimental to the success of the business. It can be a bit of a surprise if it is not included in the overall cost of production and distribution. A federal tax of 18.4 cent/gallon is in place, plus each state has their own state gas tax which can be found at the Tax Foundation.

Each state has unique labor laws that govern the labor force. The United States Department of Labor (DOL) provides information to businesses and employees on labor standards. The site has extensive information over child labor, employment and training resources, recordkeeping, safety and health. As well as, several other topics, which give an in depth look at US labor policies.

The Fair Labor Standards Act of 1938 (FSLA) outlines standards for minimum wages, overtime pay, child labor, and record keeping. The federal minimum wage is $7.25 however, several states have higher minimum wage rates with unique regulations depending on the business size. As for overtime, unless an employee is exempt from receiving overtime, per the FSLA. Overtime is set at 40 hours a week, after that point employees will receive time and a half pay.

Vacation time is an interesting topic in the US, as businesses are not required to provide paid vacation for employees. Businesses are also not required to give the same benefits that full-time employees receive to part-time employees. According to the US Bureau of Labor and Statistics, only 76% of private industry employees receive paid vacation. It is up to the business’ discretion on the amount of paid vacation that employees receive. Many businesses hold eligibility for paid vacation until after one year of employment.

Labor or trade unions work to improve working conditions, wages, and hours for everyone. Only a little over 10% of employees are members of labor unions in the US. Employees who are members of labor unions on average have a higher income. A union can only be started when a bargaining unit is formed, who work with the employer to bring change to employee conditions.

Employee termination in the US is quite unique in comparison to other developed countries, the term is known as at-will employment. There is no warning that the employer must give to an employee if their employment is being terminated. The same is true for employees who quit, they are not obligated to give a notice. However, it is customary for employees to give a two weeks’ notice of quitting in the US. Businesses who give Equal Employment Opportunity (EEO) which “prohibits discrimination in most workplaces on the basis of age, sex, ethnic/national origin, disability, and veteran status” (Department of Labor). Those businesses ensure equal opportunity for all employees.

Workers compensation is a form of insurance that distributes wages and medical expenses to employees who are injured at work. Workers compensation depends on the insurance policy that the business has, which also depends on the type of industry the business is in. In many cases for example, manufacturing and construction have much more extensive workers compensation than retail workers.

A business partner is not a necessity for an international business expansion. However, it can make the expansion to the US less ambiguous, if one of the businesses is familiar with general business regulations. It does add another voice to the conversation which can improve the effectiveness of the plan. Specifically, if the business is based in the US, the business already has firsthand experience with clients, logistics, and the political environment for businesses.

The AHK is a great resource for a business expansion. Their business partner search has a lot of information. As well as, contact information for senior management who can assist in the partner search. Another resource to look at, is your current business relations in the US. This can be of great help to find a partner for the expansion. Choosing whether or not to have a business partner also effects the business structure. A business partner will also greatly affect, how the business files for taxes.

For assistance finding trusted businesses in the area you choose, utilize the Better Business Bureau (BBB). The BBB connects trusted buyers and sellers from across the United States.

The AHK boasts a Foreign Market Entry Program with the most up to date programs and delegations. A goal of the programs and delegations are to assist small and medium-sized businesses to integrate into the US market. The Foreign Market Entry Program also has senior management who are available to answer questions and concerns.

Once a specific market is identified, a market analysis can be purchased. A market analysis is costly but will yield a highly detailed report. That allows the business to make the most informed decision for the future. There are quite a lot of businesses that can provide a market analysis of the desired market.

The US Census Bureau has compiled an informative site that relates highly accurate data with locations across the US. The site helps businesses best choose a location based on analysis of the specific industry by providing a report of the area. The report shows potential customer demographics, including the amount of money households spend on different industries. The report also compares the current saturation of businesses in specific industries.

If a business is ready to expand their revenue and brand recognition internationally. Creating an action plan and then implementing the plan will make a worlds difference in the expansion effort. Expansion to another country let alone another continent is difficult but businesses have found it to be well worth the investment.

(Author: Brice Miller)