When setting up a US business as a non-US resident, there are many challenges. One of the biggest challenges when learning how to set up a US business as a non-US resident is finding where to start your new US business. The decision on where to set up your business will have a direct impact on choice of state of incorporation. There are a number of different approaches you can take, but they tend to fall into three main categories.
The 3 Main Techniques for Finding Where to Start Your New US Business
“Dartboard” technique: Management picks a location that sounds good, is near the CEO’s Florida condo, has the lowest state tax rate, or otherwise chosen without detailed analysis and without regard for company’s overall plan and objectives. From an analytical point of view, management might as well just throw a dart at a map of the US to determine its location. Self-directed research: the company does its best to determine what it assumes is the best location, based on its internal resources and external research. The research team may or may not have the expertise to know what questions to ask at the beginning in order to create the appropriate list of requirements for the new location, and thereby may either come up with an inappropriate result or may end up wasting a lot of time going in a wrong direction. Hire a location consulting firm: the company hires the expertise of a firm that will lead them to determine the best location, and can contribute knowledge and wisdom based on the experience of others, for a price. If the consultant firm has a great track record, the firm should be in good hands to get an appropriate analysis and well thought out plan of action. If the firm is new to the field, the cost will be lower but the results may not be much better than having the firm do the work itself. Each technique has good and bad points. The first technique is the simplest and fastest, and at the beginning costs the least. However, it may turn out that the fast and easy decision leads to the company being located far from its market and/or suppliers, and having to pay substantially higher shipping costs than its competitors.
The Dartboard Technique
The dartboard technique is more popular than you might think. Unfortunately, the long-term cost of this type of short-term thinking can be very high. Although ultimately it is top-management’s personal preferences that will determine the location of the business, the preferences are best determined through analysis instead of biases and guesswork. When choosing where to start your new US business, guesswork is expensive.
For a company doing its own analysis, management will have to measure the cost to benefit analysis of keeping the discussion unbiased, knowing what questions to discuss to determine the company’s true objectives, and developing its own methodology for picking an appropriate shortlist of potential locations. If the shortlist is well is truly objective, then the final choice should be appropriate.
Use a Location Consultant
The use of a consultant may be considered too expensive for many smaller companies, but if the consultant is good, the cost will be negligible. A skilled consultant will be more objective when asking company management about the goals, strategy and priorities, work hard to develop a shortlist based on the objectives and budget, and help in the final selection. A great consultant will also have connections that will help with the execution and post-selection details once the location has been chosen. Using a consultant not only helps guide management through the decision-making process for choosing a location, but also helps free up management’s time to focus on execution of the business plan instead of diverting resources to learn how to pick the location. Time spent learning how to structure the process of choosing a location can be better spent preparing to set up the subsidiary, deal with finance, immigration, hiring and other necessary details.
There are many other aspects to setting up a company in the US as a non-US resident. Whichever technique you choose, there is a 5-step process to go through in order to choose your location.