Small businesses are the backbone of the American economy, employing an estimated 120 million people. Whether you’re one of the 30 million existing small business owners in the US (or you’re thinking about becoming one,) you might be considering opening a new store out-of-state.
If you’re experiencing strong revenue and would like to capitalize on your growing brand awareness, a second location could help to expand your empire; however, like any business venture, there are some key factors that you should consider before opening day. Below, we explore some things that you should know before opening your out-of-state store:
1. Local regulations may vary
Per the constitution, US states are free to create their own local laws and regulations, in addition to enforcing federal laws; this can cause complications if you’re operating a business in an unfamiliar state. What may be perfectly legal to sell in your current state may be heavily regulated in the locale where you intend to do business; this is especially true if you sell age-restricted or adult products, such as glass pipes or alcohol. For example, if you need to know how to sell bongs legally, make sure to research the state regulations relating to your product and to consult a lawyer to ensure that you can run your business uninterrupted.
If you sell age-restricted products, consider seeking advice from a payment processing expert; some mainstream payment processors may consider your product high-risk, potentially interrupting your business operations.
2. Tax requirements may change
No matter where your initial business is registered, most states will require you to pay some form of tax on any income originating from a business in their jurisdiction. As most small businesses are a limited liability company (LLC) or sole proprietorship, they will be subject to a state tax on personal income.
While sole proprietorships can begin conducting business with relative freedom, any LLCs will need to register with the state that they intend to operate out of, and pay any required fees. A Certificate of Authority application (also referred to as a Statement and Designation by a Foreign Corporation) must be lodged with the relevant Secretary of State office. If you do not register your business in the appropriate state, you may leave yourself vulnerable to fines, back taxes, and limited legal rights in that locale.
Staying up to date on any new taxation rules for interstate business can be extremely complicated; consider hiring an accountant either local to the state you’re opening a store in, or an accountant licensed to practice in both your home and business states.
3. Shipping and handling may get complicated
Opening an out-of-state store presents some unique challenges—shipping and handling being among the most important, due to the value of products lost if something goes wrong. If your new store is part of a franchise, it might make sense to consider third-party logistic help to centralize your packing and shipping operations. In addition to freeing up your shop staff, having a third-party logistic partner reduces the risk of items being out-of-stock for online orders, and may improve shipping times.
If you’re moving stock between stores in different states, be wary of any travel restrictions on size or weight of shipments. For example, each state has different guidelines on what constitutes an oversized load, and may require special permits or travel times. It’s also important to understand the legalities of shipping certain products, such as alcohol, across state lines, whether it’s between your stores or direct to customers.
4. Employer obligations may be different
Many business owners may not consider whether they need to provide different benefits or processes for out-of-state employees; the store that you’re opening may be located in an area with different employer obligations than you’re used to. Some states, including California, Oregon, and Washington, have more employment laws than others; however, you should review local laws for any state that you’re doing business in. Common laws to review include:
- Minimum wage
- Overtime rates
- Paid and unpaid leave
- Paycheck delivery
- Drug testing
You may need to make adjustments to your employee contracts, handbooks, or even uniforms in order to abide by all local employment laws. Failure to comply could result in expensive lawsuits from unhappy workers.
5. Company communication is critical
One of the major challenges faced by business owners with out-of-state workers is communication; the inability to be face-to-face with employees can cause feelings of disconnection and isolation in your staff. Lack of communication can impact your business operations, as well; in a recent survey, 86% of employees and executives reported that ineffective communication was a major factor in workplace failures.
There are many tools available to help business owners and employees communicate effectively while working in different locations; regular video calls, interoffice messaging systems, and start-of-day phone meetings are all good ways to stay connected to your out-of-state staff. It’s estimated that up to 80% of businesses are now using social collaboration tools to benefit their operations, and organizations that support effective communication are 4.5 times more likely to retain their top talent.
6. Store location matters
As any retail entrepreneur knows, the location of your store can make or break your business. No matter how great your product range, a storefront with minimal foot traffic may struggle to turn a profit.
Before opening a store out-of-state, make a few trips to the area where you’re thinking of operating, and take note of the foot traffic and clientele; talking to shop owners in the area is also an ideal way to get local advice. Review your ecommerce sales to see if there are certain areas in which you already have a potential customer base, and consider trialing a pop-up shop before you commit to a long-term lease.
Opening a new store can be stressful under any circumstances; however, establishing your brand out-of-state can come with a raft of unexpected challenges.
Thoroughly research all small business laws and regulations in the state that you’d like to operate out of, and enlist the services of payment processing experts, lawyers, and accountants to ensure that your store is positioned for maximum success.