The REAL Cost of a USA Office

Are you planning to open an office in the USA in the new year?  If so, you may be in for a shock at the rising cost of opening and maintaining an office here.

True, the recession has made office space less expensive: Some foreign companies I know are anxious to buy an office here while prices are low.

And yes, high unemployment has made hiring a little easier and cheaper. But these short term savings mask some of the medium term costs for foreign companies who are contemplating market entry to the USA.  Consider these 3 facts:

1. The total cost of an employee is approximately = (Salary + Commissions) x 120%.  That is, the cost of health insurance, social insurance (Federal + State), and employer taxes (Federal + State) adds about 20% to the cost of an employee.  Making this situation worse, employers must pay different rates in different states, and in nealy all cases, the cost of these add-ons is rapidly INCREASING.  Health insurace alone is going up by 5% to 10% each year.  And now many states have announced that social insurance (primarily Unemployment Insurance, or SUTA) will double or triple in 2010.  The large number of unemployed workers in 2009 has caused the states to need more revenue, so taxes are going up.
    
2. When you hire an employee at a low salary, you can be sure that they will continue to look for something better.  And when the job market improves in 2010, count on your best people leaving for higher-paying jobs elsewhere.  Employee turnover is a fact of life in the USA, but turbulent economic times make the problem worse.  And turnover is expensive -- as the cost of recruiting (35% of annual salary) and training (10% of salary) are compounded by having a position vacant for a period of time.
    
3. Even real estate can be a money pit.  Buying now seems like a good plan, but no matter how low the price, ownership brings with it an obligation for paying maintenance, improvements, and TAXES.  Real estate taxes in particular will seem high, since they are based on the property's prior value, and not on current market prices.  By the time taxes and transaction costs are factored in (6% real estate brokerage fee is typical), you should plan on staying in an office at least 5 years before you will see any positive cash flow vs. renting.   If your company grows rapidly in that time (or worse, suffers a downturn), you are likely to be stuck with an illiquid asset that may not have retained its value.  Plenty of property owners are wishing they were renters today... and the worst of the commercial real estate market is still ahead.

Market entry has plenty of land-mines in the USA for unwary foreign companies.  Entering the USA Market takes more than having a great product... it takes careful budgeting and planning.  If building an office in the USA is on your list, be sure you know of all the true costs of company ownership here.

And of course... please consider finding a partner in the USA who can help you get over these hurdles.  Partnering with an established company in the USA will let you focus on products and customers... not the daily burden of taxes and recruiting.  If you'd like to learn more about our "turn key" partnering program, please contact AmeriStart.