Insight: Costs to Start Your Business in the US
It’s one thing to have a good business operating in France, it’s another to export that business to a new land, especially America. One common mistake that French entrepreneurs make when they come to conquer the American market is budgeting. We all know about the American dream and strive for our company to be the next unicorn. This big leap of faith should be carefully planned and thought out if it is to be successful. Bad preparation of this project can be disastrous and lead to some expenditure that may prove fatal to growth.
We talked with some of our most experienced advisors and consultants, all of whom have lived and worked in the United States for a decade plus, about what to expect, important budgeting concerns, and how to properly plan for your first year and more. Our insight shows that the costs of starting your business in San Francisco and New York are 65% higher than in Los Angeles.
There are two main budgeting matters every business owner must concern himself with. How to keep your business running and how to keep your personal life afloat. We have simulated the cost of starting business operations and moving your personal life to three leading technological, cultural, and entrepreneurial cities; New York, San Francisco and Los Angeles.
1. Business registration and visa
Some costs are going to be the same wherever you settle. The cost of creating the business in the US and securing visas can run you up to $15,000, including the legal advice fees. The price can seem prohibitive for some entrepreneurs but it is better to seek legal advice to conduct your affairs as well as make sure everything is done by the book and the foundation of your business is strong.
2. Tradeshows and conferences
Once the business is set up and your immigration is taken care of, it is important to make yourself known and to learn about the primary actors in the market. The simplest way to do that is to participate in trade shows and conferences. The impact of networking is tough to quantify, but it is a primary facilitator of growth in the United States, and its value cannot be overstated. It may seem like networking doesn't bring capital directly but a lot of business is done through the subtleties of relationships in the US, and the investment is definitely worth the cost. During a year, you should account for approximately $35,000 for this expense regardless of which US city you chose as your homebase.
3. Plane tickets to France
With your core business still based in France, it is important to maintain the success at home that has allowed you to expand abroad. In order to fully keep your French roots nourished, you should plan to return every month. For that, we have to make room in our budget for air travel expenses. If we take into consideration one round-trip flight every month the cost will be $12,000 a year average.
If you contract with a specialised company for the relocation of your business and the moving of your home they will take care of it from start to finish for $10,000 minimum.
Now that we have addressed the similar expenses, we need to examine the categories that dramatically distinguish between Los Angeles, New York, and San Francisco. The most important variable to account for is the availability of competitive talent and significantly lower annual costs when operating in LA rather than New York or San Francisco.
Let’s check out how much you will need to set aside to pay for a marketing department to start bringing in new clients. Each individual annual salaried employee will cost $50,000 dollars in LA and $70,000 dollars in San Francisco and New York.
6. Customer service
We need a customer service department to help your new clients. It is incredibly important that your new American clients have someone to talk to when they need them, and most importantly in their language. One customer service professional salary runs about $40,000 per year in LA, but that number jumps to around $60,000 per year in NYC/SF.
7. Sales manager
To coordinate these employees and help you set up your strategy, a sales manager is going to be very helpful. It’s paramount to find someone who knows and has experienced the market you are working in. This will likely be the main salary you will have to find the budget for, but it is also the most crucial. Getting clients in the door from the beginning and keeping them happy are factors that have to be emphasised. The net annual cost is about $130,000 in Los Angeles and $250,000 in San Francisco and New York. That number does not include the commissions that your sales manager receives when he gets your company a good deal or client.
You’re going to need some offices. The rent for offices in Los Angeles is on average $48,000 a year. It really depends on the area you wish to be located in, but usually rent (for 800-1000 sf) is around these prices. In San Francisco and New York, where rentals are more expensive, count at least $72,000 for the same size offices.
Depending on the size of your business and its industry it will probably have to provide insurance for its employees. The health insurance covers parts of the costs of medical bills for you and your immediate family. It will cost your business $38,400 that first year.
Last but not least, your salary. That is where the personal expenses meet the business expenses. The total of your personal expenses (calculated later in the article) should be your net salary. It will be the last input for our business costs. The salary that your own company should pay you as CEO is $217,260 if your business is based in LA, $312,968 if in San Francisco and New York. To get these numbers we accounted for the total of the personal expenses (net salary) plus state’s income tax and federal tax.
After crunching the numbers, the total cost for the first year of business in LA sits at about $595,660 and can run you upwards of $875,368 in SF/NYC. Basically, that is how much cash you will need on hand for the first year of starting your operations in America to cover all your expenses. These costs can be tremendously hard to bear in the first year of expansion. Especially because they all come simultaneously and there are no guarantees of return. The process can take some time, getting clients is a long run mission, and the stress of months of startup can often be hard to endure. 50% of French entrepreneurs fail during their first year, and it’s normally a combination of those factors. The risk is maximised that first year and many don’t make it past it. The key is to anticipate those costs and be ready for them as well as getting good advice and help from experienced individuals.
Now that we have covered the business side, let’s focus on the personal side of it.
We talked to a family of four who settled in San Francisco 8 years ago. They gave us some insight to their family budget.
One of the most important expenses is going to be school for your kids. We illustrate the example if you chose a private international school. Of course there are other options such as charter schools or public schools and the costs are extremely different for each of them. The tuition fees for two kids between 6th and 9th grade at Los Angeles International School are $47,000 a year and at the International School of the Peninsula in San Francisco the costs go up to $60,000. These costs include tuition fees and other fees such as enrolment although it does not cover other expenses and supplies.
For a three bedroom apartment or house in Los Angeles, the rent will go up to $54,000 per year however that figure can vary depending on the region you chose. In San Francisco and New York the cost can approach $98,400.
3. Groceries and entertainment
As groceries go, it is safe to assume that for a family of four in Los Angeles the cost will be $20,400 per year and $26,400 a year in SF/NYC. This does not include eating out, or any other kinds of entertainment or additional expenses. For entertainment you should anticipate around $10,000 a year for a family of four in LA and $14,000 in NY and SF.
4. Plane tickets to France
The plane tickets for the whole family to go back to France twice a year for vacations will cost on average $8,000.
Los Angeles is unique, you have to own a car if you want to have any independence or freedom of movement. It has infamously poor public transportation. However, the last decade has seen dramatic improvement on that front and now large portions of central LA are accessible via metro. San Francisco is similar to LA, but with a much more developed transit system that can save on gas and maintenance costs, but you’re still going to need to budget for a car. A car will cost about $4,000 a year to lease with gas and repairs in LA, slightly less in SF, and you shouldn’t need a vehicle in New York.
Last but definitely not least, health insurance. The business covering a part of the insurance expenses for the family you should only need to pay about $9,600 a year to cover a family of four.
These personal expenses finally give us a total of $146,000 for Los Angeles, $240,400 for San Francisco and New York. That is how much you need to provide for your personal life for a year.
Now you have a better idea of all the costs linked with the expansion of your business in the United States, what to expect and how to plan properly. The figures may seem large from a French perspective but the American market has equity valuations five times superior to France’s and America's VCs invested $77 billions in 2015. It is important to realise that the expansion of your business entails some risks but also tremendous opportunities.