Digital Ventures

Many European businesses have flopped (along with many other exports to the USA) when trying to setup in the US due to bad planning and underestimating the costs and challenges.

However, it’s not as bad as it’s made out to be to start up a business in the USA if you are prepared and fully understand the differences in the law, Taxation, Immigration and business in general.

One thing you must learn early is that the USA is like the whole of Europe combined, each State is like a Country with different laws, taxation and issues – you need to be aware that doing business in more than one state is like doing business in more than one Country with the associated costs and complexity.

In general you will need more money for most things than in Europe on the business front, sometimes because you won’t have the network and sometimes because things are just more expensive, especially in California. A simple example is that a small PR campaign in the UK would start at £5 per month, in the US it would be double that. When you start to add up 1.5-2x the costs on many things like professional fees, print, post, staff, utilities and you will seriously notice the difference.

On the up side in 2006 the costs of living are lower for UK citizens due to the exchange rate and the employment laws can be a lot easier than in many European countries. For example in CA there is only a single days "notice" for either side in law!

The very first thing you will need is a Lawyer! – the USA is very litigious and you will to get started on the right foot. It’s very easy to start trading without all the requisite forms completed and protections in place.

The US is also very bureaucratic and has lots of time consuming procedures and processes, these are often hard work to get done and the staff in these agencies can be less than helpful.

Beware, if you fall foul of the law or the authorities you will be hit very hard – especially if you are late with your tax returns to the federal government!

I strongly suggest you get a local to help you setup your business for a start too, parachuting in someone can slow down the startup process by months as the network has to started from scratch, and like everywhere in the World people from the US like to work for local people they understand and can associate with.

Here is my quick checklist for setting up in the USA:

Legal – get a good lawyer, that’s the most important first step. Watch out as lawyers in the US can be villains and crooks. Get a referral if you can or take up 3 references if you don’t know anyone.

Accountant – an accountant in the US is called a CPA. Once again you need a good one, I suggest a tax specialist and one that fully understands the differences between European and US accounting practices. The US is totally different and uses GAAP accounting. Also you can easily get caught by the US authorities for massive tax bills if you don’t plan in advance and get the company structured correctly.

Company formation – I would recommend setting up a Delaware company for convenience and cost. Watch out, the agencies setting up companies often do the minimum required and you will need to get many other forms and processes completed to be compliant. I would recommend using your lawyer, it will cost at lease £2500.

Taxation – You need to structure your company very carefully to avoid paying too much tax. You also need to take into account the severe penalties for you and your staff if things are not fully in compliance with federal laws.In our case we have set up a cost plus marketing agreement with our US Inc subsidiary and this works out the most tax efficient, ask your CPA.

Watch out for the fact that tax is paid in advance and that will have to pay tax in all states you have staff or do business.

Watch out for lots of little costs like annual business licenses and minimum tax bands even if you are not trading or making a loss.

Business licenses – There are also lots of little costs and lots more paperwork such as business licenses that need to be attended to in order to trade in every state.

Staff – Employing locals and trying to pay them as agents is generally a no-no due to the tax laws and issues for staff with complex rules for health care, taxes and pensions. In most cases staff must be paid locally even if they are not local or you will once again have issues with getting caught with higher company and staff taxes!

Watch out for the local laws, they vary a great deal, as do the tax rates and all the extra costs for staff that can often be less than obvious. Do your homework on the best states to employ staff as the costs vary enormously on pay scales and associated health care costs – many choose Canada for this very reason.

We recommend you outsource your staff payroll and associated issues to a Company like Paychex.

EIN number – One of the very first things you must apply for when starting up is your ‘foreign company’ EIN number. You will need this for almost everything and it’s a hassle needs time and patience to get done.

Without an EIN number you cant setup a bank account, employ staff, setup all sorts of other essential services so do it early.

Offices – Much the same as the rest of the World office space can be expensive and varies hugely between States. Shopping around is key to getting a good deal and as with any good practice getting a short lease on good exit terms makes sense in case the worst happens. There are many serviced office options and I would recommend HQ as a good place to start, rather than signing up a lease.

Getting a VISA – Just because you are setting up in the USA does not guarantee you or your staff will get a VISA to stay in the US! You should be aware there are  issues for smaller co’s / startups and you will need to fight a case to get a green card.

We recommend using a qualified immigration lawyer to get you a VISA and pay $2500 for the service, the process has many pitfalls and can be time consuming.

Living costs – The cost of living in many things is lower in the US with the exchange rate but the costs vary hugely, once again, depending on which state and area you choose to live in. California can be very expensive and housing will cost 2x what you are used too in the UK for a nice area. A nice area has the benefit of good schools (often free) and low crime – everywhere else may not have that luxury.

Otherwise cars, fuel, food, clothing, holidays and the like tend to be better value.

This is only a quick overview of the issues and costs of moving to the US and as you can see it’s not as bad as many portray even for a small Company to get started, forewarned is forearmed as they say!