Expanding your business into multiple states is a great way to increase your customer base, no matter the size of your company. But when you start to cross state lines, the devil is in the legal and regulatory details. Here are five key questions to take into account as you plan your next move.
1. How Scalable Is Your Business Model?
When building out a business, no matter what kind, know where you’re going and why. Scalable structures are key; what works for 20 employees is frequently a much different beast than for 200 or 2,000. By planning out your projected growth, your business is more likely to succeed instead of crumble under its own weight. Remember, the right kind of planning can lead to rapid gains. Take City Loan, currently operating in three states with plans to expand into three more in the coming months. “If there are restrictions that come up in the industry, then we will adjust. Right now we are not seeing any problems,” says Greg Poppe, VP of Business Development. “Our company growth illustrates that point well. We have built great customer relationships and that has allowed us to not only maintain business but also to expand our business.”
2. What Licenses and Permits Can Cross State Lines?
Regulations vary across state lines in terms of licenses and permits. Take electricians: California law requires a general Contractor’s License to perform electrical work, but in Indiana, city and county governments license electricians and electrical contractors. The Small Business Administration’s handy tool can help you find out what steps you’ll need to take in your new state. For a business like City Loan that focuses on auto-equity loans, each state has different laws and licensing requirements, making due diligence a priority when expanding across state lines. 
3. What Exactly Is the State Tax Nexus?
Tax nexus is the “connection” or “tie” that must exist before a state can tax an out-of-state company or require the business to collect its sales tax. As CPA Sylvia Dion warns, “States are enacting laws which aggressively define what activities create nexus to their state. State tax officials are also aggressively interpreting and enforcing these laws. And because each state enacts, defines, and enforces its own laws, whether a particular activity creates nexus in one state may not mean that the same activity creates nexus in another state.”
These activities can include everything from a single telecommuting employee to a national sales force. Even more perplexing, state tax nexus can occur even if the company has a significant economic, though not physical, presence in the state.
4. Should Your Business Foreign Qualify or Incorporate?
Despite its international-sounding name, foreign qualification is actually for businesses that operate outside of the state where they incorporated their business, applying to both U.S. corporations and LLCs. Foreign qualifying means registering in your new state, thus subject to its rules and regulations. Although the fees may seem daunting, foreign qualifying has definite benefits, including offering court protections and helping you avoid potential fines. Instead of foreign qualifying, your business could also choose to incorporate (remember that every state has its different requirements) or form an LLC in every state. However, this can quickly multiply your company’s formalities and governing bodies, though separated assets can be an advantage when dealing with bankruptcy in one state but not another.
5. How Does Your Business Measure Up with Federal, State, and Local Laws?
Your business may have policies that directly tie into local or state laws about wages, paid time off, or even discrimination. But in a new state, these policies will need to adapt to the new regulations that apply to businesses of your size (many state and local laws stipulate the number of employees an employer must have in order to apply). Minimum wage laws, a hotly contested issue around the country, are another such example.
“Employers must comply with all federal, state, and local laws that are applicable, even if the laws have different legal standards. Sometimes, that means employers need to combine the laws and apply the provisions of each that are the most favorable to the employees,” attorney Barrie Gross. As with these other questions, the key here is plenty of advanced planning to figure out what scope is right for your particular situation.
Greg Poppe of City Loan cautions that a company must prepare carefully before expanding, making sure to take both employees and existing customers into consideration. “Moving into other states can be a challenging process. The most difficult part of the move is organizing resources and making sure the team is well informed,” he says. “The auto-equity loan industry is highly regulated state-by-state, and making sure all lending practices and marketing rules are followed are key to a successful new-state launch.”
