expanding business to another state

The Challenges of Expanding Your Business to Another State

By David Oliva, RD Appliance Service, Corp.
Article Originally Published in The Retail Observer

Opening a new service area in a different state has many of the same advantages and challenges that any remote service area will have. However, there are some challenges that are unique to operating in multiple states, and most of these are almost entirely related to taxes. Each state, and even municipalities within states, will have their own sets of sales tax rates and income tax regulations, and this creates a complex web of compliance issues that need to be dealt with.

A new service area has been a long-term goal for us for a few years now. In our January management meeting we decided that it would be a priority for the first quarter of 2021. There were a few options to choose from, but being based on Long Island, New York we decided that the suburbs north of NYC would be the best fit for us. However, because the Northeast is so densely packed, this included a county in Connecticut. Adding to the complexity of the decision was the fact that the new area isn’t contiguous with our primary area, and they are separated by the largest city in the country. This choice brought two distinct sets of challenges, one
being to operate a remote service area in general, and the other being dealing with the requirements of running a business in two states.

Among the challenges of remote service are finding technicians, dealing with parts and generating new business. Because the area isn’t contiguous it’s a bit a of a hassle to have techs drive up from our primary area. This meant we needed to find technicians that live within or near to the new area. Hiring in a remote area ultimately means traveling for interviews, meetings and ongoing periodic travel to visit and oversee operations. Although virtual options exist, they are a poor substitute for face-to-face interactions.

Parts are a logistics challenge even when dealing with just one service area, and adding in a remote location means figuring out how and where to ship, and how to deal with defects and returns. Generating service calls is one of the larger problems to solve, as it is akin to starting a new business from scratch. And moving into a new area means dealing with the established competition. There are a variety of ways to do this, but they all take a lot of effort, and even more time.

The largest challenge specific to operating in a different state is taxation. Adding to the complexity of the situation is the fact that although half of the new area is in New York it has a different sales tax rate than our primary area, but because it is the same state the sales tax payments are made to the same agency. With that said, Connecticut has its own taxation department and a different payment schedule. This requires tracking and splitting invoices and deposits by each distinct tax region, and there are currently three that we are dealing with. This is largely handled by software and reporting, but a portion of it still needs to be done manually. Because the service area isn’t large, it means that an individual tech may run calls in both states on any given day, potentially collecting payments with three different tax rates.

Although there are many challenges to expanding a service business, the potential is almost unlimited. If your processes and systems are in place and solid it makes the whole project much easier to undertake. The systems that work well in your primary area will work just as well in a new area, and if they are well formed this can make it almost a plug-and-play situation. It can be stressful and scary to expand in this way, and you will need to rely on people. The best piece of advice I received on this issue was to find a lead technician to oversee the area generally, and compensate this person well, including creative benefits. Finding the right people, as always, is the biggest challenge. Solve that problem and you will be well on your way to becoming a multi-state business.

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