Navigating New Market Terrain While almost every entrepreneur dreams of scaling beyond their state borders, understanding the hurdles of expansion can be tricky. Here are a few pointers.

By Kari Warberg Block

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Nasjonalgalleriet Oslo

As an entrepreneur of a fast-growing company, I am naturally in a hurry to expand. But as my business has scaled up, and I have expanded distribution across multiple borders at a rapid pace, I have encountered new market issues I hadn't fully considered in my planning. And it isn't going to get easier.

With new regulations being considered and implemented from state to state in 2014, as well as many state governments considering new ways to generate revenue, mapping the regulatory terrain across these borders continues to get trickier.

For instance, the level of knowledge required for national distribution of our products has required us to switch tax firms and double the budget for new regulatory compliance to help us meet the growing level of complexity in the ever-changing regulatory environment.

Related: 10 Questions to Ask Before Expanding Overseas

With what I have learned the hard way, here are three tips that will hopefully help you prevent unforeseen problems when expanding your business across state borders.

Research tax nexus. When you hire employees, add contract staff or property in another state, you are introduced to new obligations regarding sales, income and other taxes -- enter tax nexus. Nexus, which is sometimes called sufficient physical presence, is a measure that state tax departments use to determine if a business from outside a state selling products into their state is liable for the state's sales tax. Nexus can apply when your company maintains any presence of property, products, or people in another state, whether permanent or temporary. Even if you utilize an independent sales representative who signs a binding contract, you as an employer may be liable to Nexus burden in some states.

Related: Tips for Expanding Your Business to Another City

Understand state regulations and fees. It is a moving target! State regulations and fees can differ dramatically, which requires you to begin homework anew with each new area your business enters. For instance, if you sell a product that claims to mitigate, control, kill or repel an organism (as we do) the manufacturer is required to pay state-license fees, even if the product is safe, natural and organic. In addition, states such as Minnesota and North Carolina have recently issued additional fees that are assessed based on the percentage of sales or shipments within their state's borders for such things as ACCRA -- Agriculture Chemical Response and Reimbursement Act -- and ETFA, also known as Environmental Trust Fund Assessment in North Carolina.

These fees can cost as much as eight percent of a company's total sales volume in these states, in addition to the state license fee and regulatory consultant costs. American manufacturers are grudgingly assessing how to pass along these extra fees equitably since it is not technically a tax, but rather a new regulatory cost calculated like a tax that must be passed on to the consumer. And money-starved states are rushing to enact similar regulatory fees prior to administration changes that may force the hand of officials to provide a public notice of such prior to making them law.

Learning the lowdown of HR law. In addition to the tax implications, there are requirements for worker's compensation and unemployment fees when adding employees in new states. Employment rules also vary from state to state, so be sure to understand how this may impact your employment policies for things like vacation, sick leave and paid holidays.

For instance, if you have employees, like sales representatives, that work nights, weekends or holidays, you are responsible for paying these benefits many years after their employment has ended if they seek restitution. The burden of proof falls on the employer if the employee feels they have funds due and has appropriate documentation. If your employees answer texts, tweets or use Facebook after hours, their time working must be documented and paid.

How did I overcome these issues? I found it essential to find advisors that are knowledgeable in these specific topics that can help determine the impact in terms of expenses, taxes, risk and business operations.

None of these considerations are insurmountable when you plan accordingly, but the cost of not being compliant definitely could be.

Related: The Hurdles of Scaling Globally

Kari Warberg Block

Entrepreneur, Founder and CEO of Earth-Kind, Inc.

Kari Warberg Block, CEO and founder of earthkind, is hailed as a market disrupter. Her company’s mission is to preserve the good and prevent the rest. In 2013, Block was chosen as one of the top three Small Business People of the Year by the U.S. Small Business Administration and is an adviser to the National Women’s Business Council, which advises the president, the U.S. Small Business Administration and the U.S. Congress. She’s made it her mission to help other inventors and entrepreneurs overcome obstacles and grow their businesses. 

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Related Topics

Business News

Former Pediatrics Professor Donates $1 Billion, Makes Albert Einstein College of Medicine Tuition-Free

Dr. Ruth Gottesman's husband left her $1 billion in Berkshire Hathaway stock with the following instructions: "Do whatever you think is right with it."

Starting a Business

Long-Lost Sisters Who Built the Largest Black-Owned Wine Company in the U.S. Reveal How to Break Into a Notoriously Tough Industry

Andréa and Robin McBride followed their shared love of wine into business — but it hasn't always been easy.

Business News

'Next Tesla' Electric Car Startups Hit Speed Bump: 'Investors Want To See Demand'

Electric vehicle companies large and small, from Ford to Tesla to Rivian, are dealing with cooler-than-expected demand for EVs.

Business Ideas

55 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.