The U.S. market can be an attractive expansion target for small to medium-sized enterprises (SMEs) headquartered in the U.K. U.S. market advantages such as a skilled workforce, a large and data-rich consumer base, and a thriving entrepreneurial and investment culture can lead to significant new profit potential. On the other hand, determining whether expansion to the U.S. is right for your SME (now or later) can be a complex and risky process.
Minimizing that risk and complexity demands a fearless inventory of your business before making any startup moves in a foreign market. Of course, you will want to carefully assess the U.S. market fit for your offering, but there is also crucial tax, labor, legal, funding, entity structure, and timing implications to consider in your global expansion strategy. Will you operate in the U.S. as a branch of your U.K. entity, form a separate U.S. subsidiary, or enter the market through a joint venture or distribution partnership?
We will address these issues and more in this executive guide. Global expansion is a complex and high-stake undertaking that demands rigorous planning and preparation. Our goal for this executive guide is to educate you on the steps required to expand from the U.S. to the U.K. so you will be prepared to ask more focused questions as your vision takes shape.
Benefits of Expanding Your Business to the U.S.
What advantages can the U.S. market offer to U.K. businesses interested in global expansion? Here is a partial list of benefits that tend to be most attractive to U.K. SMEs.
- Market size in terms of both revenue potential and consumer population
- Skilled and educated workforce
- Language and culture similarities between the U.S. and U.K.
- U.S. access to FDI (Foreign Direct Investment) funding opportunities
- Favorable entrepreneurial and venture capital climate
- Geographical proximity to potential supply chain partners in Mexico and Canada
The size and spending power of the U.S. consumer base alone can be a big draw for international players. In addition, a U.S. presence comes with access to a massive pool of skilled workers, which can be especially appealing if your business happens to engage in manufacturing. Cultural similarities between the two countries may mean lower localization costs compared with similar ventures in non-English-speaking markets.
Opening a new operation in a foreign country obviously requires funding. With careful planning, the right structure, and certain valuation elements (such as product maturity or venture capital stage, for example) your U.S. entity may be eligible for FDI opportunities or various forms of investor participation to help get you up and running.
During your startup phase in the U.S., you will want to minimize risk and cost by keeping logistical control close to your initial base of operation. As your U.S. business model matures over time and demand for your offering grows, you may find that you can scale faster (and more profitably) by leveraging distribution, inventory, procurement, or integration efficiencies through strategic partnerships across North America. This is where geographical proximity to Mexico or Canada might offer substantial growth opportunities when the time is right.
Differences Between Running a Business in the U.S. and the U.K.
Let’s say you have tested the viability of your U.S. offering, run all the demand models, and everything looks good. Your global expansion strategy needs to encompass more than just adapting your products or services to U.S. consumer preferences. How will managing your U.S. presence differ to the way you are accustomed to doing business in the U.K.?
- U.S. workers often command higher wages than their counterparts in the U.K.
- Broader U.S. employee protections may complicate the hiring process
- Startup may take longer in the U.S. due to tax, compliance, or reporting factors
- Tax laws tend to be fragmented and difficult to navigate
- Market entry may be slower due to U.S. emphasis on long-term relationships
For comparable situations in the U.S., median pay in U.S. dollars could run as much as 30% more than you would expect to pay in the U.K. Keep in mind that the average increase could be higher for senior or highly skilled roles, especially in more competitive regional labor markets. This is a rough guideline based on 2022 labor data from the U.K. Office for National Statistics and the U.S. Bureau of Labor Statistics where median weekly earnings track at approximately $810 in the U.K. compared with $1,100 in the U.S.
Factors that contribute to a higher wage bill include not only the higher cost of living in the U.S. when compared with the U.K. and most of Europe, but also the influences of supply and demand in more competitive regional labor markets. U.S. labor expenses can also be driven up in the form of overhead burden by state and federal statutory employee protections and company-supported benefits such as retirement, health, or paid leave.
When it comes to managing global expansion, the convoluted U.S. tax code demands special attention in your early planning phase. Options that may appear straightforward or even trivial on the surface could have dramatically different tax consequences that may not be reversible. Your choice of entity type, funding structure, and staffing strategy could all have a significant impact on your initial or future U.S. tax obligations.
On the upside, the strong SME culture in the U.S. is typically more favorable than what you might find in the U.K. A rich variety of public and private resources and affinity programs could help you form connections that accelerate growth and scalability. In the planning phase, it is important to give regulatory, tax, immigration, employment law, employee ownership plans, and securities implications a prominent place in your global expansion strategy.
Preparing for Business Expansion in the U.S.
Developing a global expansion plan is a detailed and rigorous process. We are only covering essential highlights in this executive guide, but there are several vital things you need to understand about your business to determine how ready you are to set up shop in the U.S.
- Are you certain that the demand is there to support your product or service?
- Have you objectively tested the viability of your offering for U.S. consumers?
- Can your U.K. offering be adapted to the U.S. market or will you need something new?
- Do you have the necessary funding in place to support international expansion?
- What company structure or entity type will be best for your U.S. operation?
- How will you preserve your U.K. company identity and culture?
- How will your U.K. and U.S. teams collaborate and communicate?
One of the costliest mistakes that SMEs make when planning entry into the U.S. market is attempting to shortcut the discovery process. It is important to know not only whether U.S. consumers will buy your offering, but also whether they will understand how to use it and whether it will be a viable part of your core business model. In other words, a successful U.S. expansion requires a balance between market fit for consumers and business fit for you.
As we mentioned earlier, localization may be less of an issue because of language and culture similarities between the U.S. and U.K. but that does not guarantee that your messaging and brand identity will automatically resonate. You may not need to commit excessive amounts of seed money to expensive prototypes or focus groups to test your value proposition. The right partner can connect you with data-driven marketing agencies in the U.S. that know how to expedite this process inexpensively but reliably with tools like social listening or early stage in-market testing.
In addition to the capital you raise (or have raised) on your own, SMEs are often eligible for supplemental funding in the form of international expansion incentives or through trade group affiliations. You need to have the resources in place to weather inevitable technical and bureaucratic setbacks, and to sustain your U.S. operation for months or years as you sort out the uncertainties of operating in a completely new business environment.
You will have decisions to make about how you will structure the U.S. version of your business. You may choose to create a subsidiary, open a joint venture or distribution partnership, or simply establish a U.S. branch of your U.K. entity. These options each present advantages and disadvantages that you will need to evaluate against the entity type you will choose (C Corporation versus LLC (Limited Liability Company), for example), the U.S. state where you will base your entity, and how you will elect to be taxed on your new U.S. revenue.
Finally, there is also a human side to this process that cannot be overlooked. Who among your current management team will need to relocate to the U.S. to oversee the new venture? What personal compensation, benefits, travel, housing, or immigration hurdles will you have to clear?
To minimize business friction, you will need to plan for time differences, collaboration and digital asset management tools, data collection and reporting, and shared project and workflow standards. In addition, you will need to be intentional about keeping your people connected to your company identity and culture while allowing U.S. employees to build engagement and connection in ways that are meaningful to them locally.
Steps for Expanding Your U.K. Business to the U.S.
Depending on the business structure and entity type you choose, registration and documentation requirements may vary slightly from state to state. Apart from that, the basic steps to form a new business in the U.S. are common and relatively simple to manage.
- Determine the type of U.S. entity you will form
- Choose a unique business name and trademark that is not in use in the U.S.
- Formally register your business according to the entity type you have chosen
- Apply for a federal tax ID number, also known as an employer identification number (EIN)
- Register with the state agency or agencies where you plan to operate
- Select a registered agent to manage official (especially legal) correspondence
- Submit the required state documentation and filing fees
- Register with local agencies for city or county licenses that may apply
- Open a business bank account with a suitable financial institution
Again, the type of entity you choose may have far-reaching impacts on your federal and state tax obligations. This decision will have ripple effects on the other formation and startup steps you take and should be weighed carefully with an experienced U.S. global expansion expert. To avoid costly legal and administrative challenges, it pays to research your trade name options well in advance through the U.S. Patent and Trademark Office database. You will also need to set up a registered agent to manage annual and quarterly filings and legal correspondence in all states where you are registered to do business.
If you plan to start up in more than one U.S. state, you can save time and paperwork by following the “Foreign Qualification” process with the Secretary of State’s office in the additional states where you will operate. This saves you from having to form a separate entity in each state (in the unlikely event there is a compelling strategic or tax reason to do so). Keep in mind that various cities and counties may also have local registration requirements, most often to create a public record of your “doing business as” trade name.
To complete the required setup steps, your U.S. banking relationship will be a particularly important choice. In addition to financial stability, you will want to shop around for the ancillary services they offer, interest rates and fees, balance requirements, and how they might support any special transactional needs that could arise between your U.S. and U.K. operations. The bank will require copies of your article of incorporation and any relevant ownership documentation.
Continue the Conversation
As a leader in global expansion consulting, we can answer your questions regarding U.S. expansion. We can help U.K. companies of any size who want to take advantage of the current growth opportunities in the U.S. market. Our experts can recommend and tailor solutions for your business to not only meet the tax and legal requirements for global expansion in the U.S., but also to prepare the way for growth so your business has room to thrive.
Our team has deep experience in global expansion management and is ready to help every step of the way through planning, startup, and growth. Contact us today to get started. We look forward to speaking with you soon.