Expanding your business can be an exciting opportunity, but it also comes with a lot of considerations. If you plan to serve new markets, extend your product or service portfolio, or add staff, there are some important factors you must think about. Here are five key considerations to keep in mind when growing your business:
1. Forming an LLC or Corporation
When you start a business, operating as a sole proprietorship or general partnership might be ideal due to the ease of administration and no statutory compliance demands. However, you don’t get any personal asset protection or tax treatment flexibility. As you aspire to grow your business, it’s important to switch from a sole proprietorship or partnership to an LLC or corporation. Doing so creates a separate legal entity for the company that shields your personal assets from legal liabilities and business debts. With proper qualifications, LLCs and C Corporations can opt for S Corporation taxation, which can lower self-employment tax obligations for business owners.
2. Getting the Required Licenses and Permits
Expanding your product or service lines or reaching new markets means you may need to apply for new licenses or permits. Licensing requirements differ depending on different business activities and state rules and regulations. Common licenses and permits include general business licenses, sales tax licenses, alcohol licenses, and professional licenses such as accounting, attorney, physician, and engineer licenses. The key is to research the licenses and permits required in any locations where you’ll conduct business.
3. Hiring Employees
Expanding your business beyond your personal capabilities means hiring employees, which brings administrative and operational pressures with it. You must process payroll, register with tax agencies, and handle employee tax documents. Such responsibilities include obtaining W-4 and I-9 forms, sending W-2 forms, administering health insurance and retirement plans, managing workers’ compensation insurance, and choosing between payroll software or payroll services vendors. Payroll management is critical to ensure you comply with tax agencies and pay your employees on time.
4. Outsourcing to Independent Contractors
Working with independent contractors and freelancers can be a great way to improve your business’s productivity by tapping into specialized expertise. However, you must differentiate between independent contractors and employees. The former issue invoices and are responsible for self-employed taxes, while employees have taxes withheld from their paychecks. You must ensure proper classification and determine the appropriate tax obligations.
5. Expanding Your Business Out of State
Expanding your business beyond your home state means foreign qualification, where you complete the process required to authorize operations in another state. The definition of conducting business varies by state and includes having a physical office or employees working in the state, in-person meetings, or reaching certain sales thresholds. It is critical to determine nexus, which means establishing physical or economic connection with the state.
The above considerations can ensure your business’s growth is well managed and successful. When you need guidance, most state and local government websites offer useful resources.
