Expand to new locations
Once you’re ready to expand, update the marketing plan and confirm that your business is financially prepared. Then, make sure to comply with all laws, rules, and regulations in the new business locations.
Prepare for a new market
First, update your marketing plan with your new location in mind. Think about your target customer, sales plan, and competitive advantage. Add up any additional marketing and sales costs. Make sure your updated marketing plan is just as thorough as your initial plan.
Compare your business to the competition, learn about the local market, and get a sense of the advertising market with SizeUp.
Next, review your business finances. Build a forecast that projects estimated costs and estimated revenue for your new location. Take a close look at your balance sheet to make sure you can cover the costs of expanding. If you don’t have enough capital, you can try to get more funding.
Legal steps to expand your business
Expanding your business to a new state, county, or city isn’t very different from opening a new business there. You’ll want to make sure you register your business with the right agencies and pay the appropriate taxes.
License, permit, and zoning rules
These rules vary across states and localities. Getting licenses and permits in new locations is similar to getting them in your home state.
If you already have a permit or license from a federal agency, check with the issuing agency to confirm you can legally operate in a new state. Also, see whether your new state, county, and city governments require a new license or permit. Start by visiting your state’s website.
If you plan to expand your business to a new state, you might need to file for foreign qualification in that state. This process notifies the new state that your business is active there.
To foreign qualify, file a Certificate of Authority. Many states also require a Certificate of Good Standing from your state of formation. Each state charges a filing fee, but the amount varies by location and business structure.
Check with state offices to find out foreign qualification requirements and fees.
Pay taxes in new states and localities
If you do business in a new state as a foreign qualified business, you’ll typically need to pay taxes and annual report fees in the new state as well as your home state. The process for foreign qualified businesses to pay taxes is similar to any other business that needs to pay taxes in the state.
Keep in mind that not every state and locality has a sales tax. In addition, most states have tax exemptions on certain items, such as food or clothing. If you charge sales tax, you need to be familiar with applicable rates.
Pay taxes for online sales
If your business has a physical presence in a state — such as a store, office, or warehouse — you must collect applicable state and local sales tax from your customers in that state. If you don’t have a physical presence in a particular state, you’re not required to collect sales taxes.
Determining which sales tax to charge can be a challenge. Many retailers use online shopping cart software that automatically calculates sales tax rates. Make sure your sales plan accounts for the various state rates.
Know before you grow
John and Kelly planned, financed, and opened a second location for their auto repair shop. John and Kelly’s auto repair shop has been very successful and they want to open a second location. They go through a process similar to opening their first business location.
They first evaluate the customer base and competition in nearby locations. They discover an area that has few auto repair shops, but many automobile owners. After researching the competition, John and Kelly are confident their business can be successful in this new location.
John and Kelly want to pay for the expansion themselves, but don’t have enough funds. As an established business, John and Kelly’s auto repair shop already has financial documents. They show these documents to lenders as proof that financing their business expansion would be a good investment.
Next, John and Kelly select the physical location for their auto repair shop — one in an area that’s zoned for business. They then register their new business location with the proper local and state agencies — just as they did with their first location.
John and Kelly have expanded their business to a second location where they can be successful.
There are two primary ways you could expand your business with franchising.
The first is to buy a franchise, which is similar to buying an existing business. This option tends to cost more upfront, but can be less risky than trying to start from scratch.
The second way is to build your own franchise. Businesses that are good candidates for franchising have a few traits in common.
- Product or service is superior and appeals to potential business owners
- Concept and operations are easy to teach
- Business is easy to duplicate in new markets
The federal government and many states have requirements that must be met in order for you to sell franchises, so you may want to hire an attorney. Once you’ve begun franchising, some states remain active in the relationship between you and your franchisees by monitoring territorial rights or limiting the transfer and renewal of your franchises.
Franchising has more costs than many other types of businesses. You’ll probably need to pay lawyers, accountants, and advertising staff. Don’t forget about training the employees and building systems you’ll need to run the franchise.