Dodging the Hazards of Out-Of-State Expansion
For many successful local businesses, it’s an idea that seems enormously appealing: Build your company by establishing a beachhead in neighboring states. It makes perfect sense on the face of it: If a product or service is a market success in Michigan, for example, it stands to reason that it will fare well in Indiana or Ohio. And there’s seldom a reason why a restaurant chain that’s popular in Florida would fail to gain traction in Georgia.
It makes perfect logical sense – but business is not always logical, particularly not when government regulation is involved. While market conditions may be nearly identical from one state to the next, regulatory and taxation environments usually are not – and those differences can go a long way towards torpedoing the success of an expansion effort, often almost as soon as it begins.
As is often the case when it comes to the hazards facing growing businesses, the biggest problems are caused by the issues you don’t know exist and the hazards you can’t see coming. Unless your company is already a major corporation with an established presence —and on-the-ground expertise—in other states, it is a virtual impossibility that you’ll be fully aware of all of the potentially problematic differences between your new place of business and your home base. That’s a problem.
Taxation and regulation are the first and most obvious pitfalls. Tax and regulatory codes naturally differ from one state to the next; each state has its own centuries-long index of whys and wherefores that have come to constitute its current-day regulatory and taxation environment. In virtually all cases, these are the cumulative end product of decades of capricious governance: Local and state officials, acting in self-interest or in the interest of special interests, enact a welter of tax and regulatory burdens that remain on the books for years and which usually multiply their reach and impact exponentially over time, creating an impenetrable tangle for businesses to wade through. Income tax, sales tax, property tax, workers’ comp, health and safety, environmental issues – the list of distinct areas potentially affecting a would-be new business are endless.
These are sizeable problems in and of themselves – but they are not the only consideration. Laws and regulations don’t exist in a vacuum; rather, they function within the unique local political, legal and social framework. In practical terms, Ohio doesn’t function identically to Michigan, nor Atlanta to Orlando. Each state, county and municipality is subject to its own localized customs, power structures, and idiosyncrasies. Even when a company operates fully within the letter of the law, capricious local officials and arcane provincial practices can draw new businesses into the regulatory quicksand.
Knowing both what and who you need to know to sidestep these pitfalls is essential – and that’s where Trion has proven its worth to many of our growing clients. As an established national PEO with a solid on-the-ground presence and a wealth of localized institutional expertise, we’re able to navigate the payroll tax and regulatory minefields wherever there’s business to be done – and we shield our clients from costly, time-consuming entanglements with local compliance authorities. Clients usually come to us to handle the routine daily hassles that they know and expect, but we often deliver much of our value in dealing with the ones they don’t expect. As many of them will tell you, that can make a big difference – often between success and failure where out-of-state expansions are concerned.