Ama­zon’s mete­oric rise is the stuff of busi­ness leg­ends. From pio­neer­ing dig­i­tal book­seller to retail behe­moth to cor­po­rate ser­vices heavy­weight to media jug­ger­naut, Ama­zon’s ambi­tions are lim­it­less. As the com­pa­ny looks to hit $200 bil­lion in annu­al sales, it seems there’s no indus­try that founder Jeff Bezos won’t touch.

The Ama­zon sto­ry isn’t just remark­able; it’s aspi­ra­tional. When entre­pre­neurs see Ama­zon’s ever­last­ing expan­sion, they imag­ine mak­ing sim­i­lar plays for indus­try dom­i­nance. While ambi­tion is well and good, these would-be cap­tains of indus­try need a dose of real­i­ty if they want to suc­ceed.

Ama­zon did­n’t close its eyes, make a wish and become one of the world’s most valu­able com­pa­nies through blind faith. It stud­ied mar­ket needs, iden­ti­fied con­sumer demands and moved swift­ly but smart­ly on new oppor­tu­ni­ties. Suc­cess stems from thought­ful, edu­cat­ed deci­sion-mak­ing root­ed in logis­ti­cal real­i­ties — not from emu­lat­ing the Ama­zons of the world with no under­stand­ing of their strate­gies.

Relat­ed: 6 Signs That You Should Stop a Busi­ness Expan­sion in Its Tracks

 

Keys to expan­sion suc­cess

If your com­pa­ny is blow­ing up (in a good way), con­grat­u­la­tions. By all means, take advan­tage of that momen­tum and expand into new mar­kets. Just make sure your process­es are scal­able and that you’ve done your due dili­gence before rock­et­ing your com­pa­ny in a new direc­tion.

The fol­low­ing point­ers can help you cov­er the fun­da­men­tals of expan­sion and set your com­pa­ny up for world dom­i­na­tion:

  1. Secure a license to oper­ate in each state.
    Oper­a­tional stan­dards and licens­ing require­ments are unique to each state, and they’re often more com­pre­hen­sive than fed­er­al guide­lines. If you plan to open phys­i­cal stores or con­duct vir­tu­al busi­ness with clients in a par­tic­u­lar state, there’s a good chance you’ll need to file for “for­eign qual­i­fi­ca­tion” — among oth­er crit­i­cal legal paper­work.

    Once you’ve decid­ed where you want to expand, research the legal process for each loca­tion. Our com­pa­ny worked with a legal con­sult­ing ser­vice that launched two new busi­ness­es in oth­er states. Before it could open the new loca­tions, it was required to estab­lish new bank accounts, licens­es and oth­er com­pli­ance fil­ings. It can take quite a bit of time to file the nec­es­sary paper­work, and you don’t want a minor issue to delay your expan­sion.

    Burg­er chain Shake Shack has been grap­pling with this sit­u­a­tion as the com­pa­ny expands from the East Coast to the Mid­west and the Bay Area. The com­pa­ny went so far as to hire a ded­i­cat­ed com­pli­ance admin­is­tra­tor who works to ensure restau­rants in new mar­kets are prop­er­ly licensed.

    Relat­ed: Your Papers, Please! Reg­is­ter­ing Your Busi­ness in Mul­ti­ple States

  2. Under­stand your tax oblig­a­tions.
    You must file state tax returns any­where you main­tain oper­a­tions. If you hire sales­peo­ple or agents in anoth­er state, rent an office space, employ telecom­muters or use your own deliv­ery vehi­cles, you like­ly need to file tax­es in any applic­a­ble loca­tions.

    If you’ve over­looked past tax oblig­a­tions, don’t pan­ic. We worked with a cus­tom soft­ware firm that incor­rect­ly filed its state tax­es due to mis­guid­ed advice. Our team was able to help it secure the prop­er licens­es and refile its pre­vi­ous returns, and the com­pa­ny is now ful­ly com­pli­ant. The key is to be proac­tive in address­ing your mis­takes rather than wait for the gov­ern­ment to pur­sue out­stand­ing bills.

  3. Research sales and use tax laws in each juris­dic­tion.
    Mul­ti­state oper­a­tions can spi­ral out of con­trol if you don’t under­stand the tax laws that apply to each juris­dic­tion. Every state is either ori­gin-based or des­ti­na­tion-based for the pur­pose of tax­a­tion. Ori­gin-based states expect com­pa­nies to col­lect sales tax based on the tax rates where they oper­ate, which includes a flat state sales tax plus any local tax­es that apply to the city where they’re head­quar­tered. Des­ti­na­tion-based states require you to charge sales tax based on wher­ev­er your cus­tomers are.

    The sit­u­a­tion becomes more com­plex if you oper­ate as a remote sell­er and must con­tend with com­pli­cat­ed use tax­es. Your best bet is work­ing close­ly with your account­ing team to deter­mine what your par­tic­u­lar tax oblig­a­tions are and what those mean for your cus­tomers and your com­pa­ny.

    For instance, Cal­i­for­nia has the high­est state sales tax rate at 7.25 per­cent. On the flip side, Col­orado has a low sales tax rate of 2.9 per­cent. If that’s still too much, states such as Alas­ka, Ore­gon, Delaware and Mon­tana have no sales tax what­so­ev­er. Do your home­work on the tax sit­u­a­tion in any locales you’re con­sid­er­ing for expan­sion, and keep these dis­crep­an­cies in mind as you for­mu­late your plans.

  4. Adjust your insur­ance poli­cies as need­ed.
    Just as tax require­ments vary from state to state, so do insur­ance laws — and the guide­lines can be equal­ly com­plex. The stan­dards for work­ers’ com­pen­sa­tion and prop­er­ty insur­ance poli­cies are high­ly depen­dent upon state laws, so don’t expect to adopt a one-size-fits-all approach.

    Research by Mar­shall &; Swift/Boeckh indi­cates that 75 per­cent of U.S. busi­ness­es are under­in­sured by at least 40 per­cent, which pos­es major issues for mid­size and large com­pa­nies. Talk with your insur­ance provider about the options for each loca­tion, and make sure your poli­cies are in place before you expand.

    Relat­ed: The Type of Insur­ance You Need for Your New Busi­ness

     

No busi­ness leader has come to regret over­pay­ing tax­es — you’ll receive a refund when you file annu­al­ly — or being too gen­er­ous in employ­ee pro­tec­tions, but lean­ing to the oth­er end of the spec­trum could derail your dreams of becom­ing the next Ama­zon. The logis­ti­cal ques­tions you might face dur­ing an expan­sion are as unique as your com­pa­ny’s cir­cum­stances. That said, every expan­sion should begin with two basic prin­ci­ples: mod­el­ing the costs in time and mon­ey and erring on the side of cau­tion when it comes to com­pli­ance.

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