Series A US Expansion Budget for UK Startups: Fully Loaded Employee Costs and Runway

Series A US Expansion Budget for UK Startups

Your Series A is closed, the capital is in the bank, and the board has signed off on the primary strategic goal: entering the US market. While the potential is enormous, the financial uncertainty can be paralyzing for a UK startup. The costs of expanding a UK startup to US shores are notoriously difficult to pin down, often buried in compliance, state-level taxes, and employee-related expenses that have no direct UK equivalent. Building a budget that is both realistic for operations and credible to investors requires a structured approach that moves beyond a simple spreadsheet of salaries. This plan outlines a practical, three-step framework for founders to budget for US expansion, model the impact on runway, and present the plan effectively.

Related frameworks and templates live in the Use of Proceeds Modelling hub.

Foundational Understanding: The Two-Entity Reality

Before budgeting a single dollar, the first step is to accept your new corporate structure. Your UK Limited Company will not be directly hiring employees or signing contracts in the US. Instead, you will create a separate US subsidiary, which is a critical step in managing liability and attracting future investment. For technology companies, the path is well-defined: a Delaware C-Corp is the standard for tech startups seeking future US investment. This creates a two-entity reality, a UK parent company and a US subsidiary, which has significant operational and financial consequences.

This is not just a legal formality. It fundamentally changes your financial operations. You will now maintain two sets of books, manage two payroll systems, and navigate two different regulatory environments. While your UK entity might use Xero and operate under FRS 102, your US entity will likely use accounting software like QuickBooks Online and must conform to US Generally Accepted Accounting Principles (GAAP). For investor reporting, financial models for investors should be presented on a consolidated basis using US GAAP principles for consistency. Understanding this dual structure is the necessary foundation for building an accurate budget.

Step 1: Deconstruct US Market Entry Costs into Three Buckets

To manage the complexity of cross-border operational expenses, what founders find actually works is breaking down all potential US market entry costs into three distinct categories. This method organizes your thinking and prevents critical expenses from being overlooked. The three buckets are one-time setup costs, recurring fixed costs, and per-employee variable costs.

Bucket 1: One-Time Setup Costs

These are the initial, non-recurring expenses required to get your US entity operational. The largest component is typically legal fees associated with incorporation. You should budget ~$3,000-$7,000 for legal assistance for entity formation. According to guidance, this is a "Typical range for a standard setup with a reputable law firm or service like Stripe Atlas/Clerky." This process establishes your Delaware C-Corp and ensures it is structured correctly for future venture capital funding. Other costs in this bucket include setting up a US bank account, registering for federal and state tax IDs (like the Employer Identification Number or EIN), and any initial consultations with US-based accountants or HR specialists to ensure your setup is compliant from day one.

Bucket 2: Recurring Fixed Costs

Once established, your US entity will incur ongoing costs regardless of its activity level or headcount. These are the predictable expenses you can budget for annually or monthly. A key US-specific cost is state compliance. For example, Registered Agent Fees are ~$100-300/year per state where you operate. This service is a legal requirement, providing a physical address for official correspondence in your state of incorporation. Furthermore, states have their own tax regimes that exist independent of federal taxes. For instance, California has an $800 minimum annual franchise tax. As experts note, "These are real tax obligations that exist independent of profitability." Other recurring costs include your QuickBooks Online subscription, specific business insurance policies required in the US, and annual state and federal tax filing fees.

Bucket 3: Per-Employee (Variable) Costs

This bucket represents the largest and most complex area of US expansion budgeting. The cost of an employee goes far beyond their salary, a critical distinction from the more straightforward UK model. To budget accurately, you must calculate a fully "loaded" cost, which includes base salary, benefits, employer-side payroll taxes, and necessary tooling.

First, health insurance is a primary cost driver. Unlike the UK's National Health Service, employer-sponsored health insurance is the standard in the US and a significant expense. A good benefits package, primarily health insurance, can add 15-25% on top of an employee's gross salary. Second, employer-side payroll taxes are substantial and mandatory. Employer Payroll Taxes, which include Social Security, Medicare, and federal and state unemployment taxes (FUTA/SUTA), are typically ~8-10% of gross salary. This is a useful "Rule of thumb" for initial modeling.

Finally, for lean teams, managing payroll and compliance across different states is complicated. Many early-stage companies use a Professional Employer Organization (PEO) to simplify this. Professional Employer Organization (PEO) fees, which cover payroll processing, benefits administration, and compliance support, can be $100-$200 per employee per month.

Consider this concrete example. You plan to hire a software engineer in California with a $150,000 annual salary.

• Base Salary: $150,000
• Employer Payroll Taxes (~9%): $13,500
• Health Insurance and Benefits (~20%): $30,000
• PEO Fees (~$150/month): $1,800

This employee's fully loaded cost is approximately $195,300 per year, which is nearly 30% higher than their salary alone. Budgeting with only the salary figure is a direct path to missing your financial targets and burning through your Series A funding faster than anticipated.

Step 2: Model the Cash Burn and Its Impact on Your Runway

With your costs organized, the next step is to model their impact over time. A static budget is insufficient for strategic planning. You need to understand how these new expenses will affect your company's cash runway, especially when US revenue is still uncertain. This is best achieved by creating a phased timeline model, typically broken down into a Pre-Launch phase and a Ramp-Up phase.

• Pre-Launch Phase (e.g., Months 1-3): This period involves incurring all the one-time setup costs and the recurring fixed costs. You might also hire your first key US employee, like a country manager or lead salesperson, who will begin work during this time. During this phase, expenses are predictable, and revenue is likely zero. Your model should show a clear, initial dip in your consolidated cash balance as you make these foundational investments.
• Ramp-Up Phase (e.g., Months 4-12): Here, you begin hiring the core team, causing the per-employee costs to scale significantly. Your total US expenses will climb each month you add a new team member. The model should clearly track your hiring plan against the corresponding US cash outflow, ensuring you have a granular view of your spending as the team grows.

The critical metric to monitor throughout this process is the Net US Cash Burn, calculated as (Total US Expenses - Total US Revenue). In the early months, this will be a negative number equal to your total spending. As you hopefully land your first customers, revenue will begin to offset some of the burn. By modeling this month-over-month, you can see precisely how the US expansion draws down your Series A funding and affects your overall company runway. This cash-centric view is far more valuable for internal planning than a standard profit and loss statement.

Step 3: Package Your Budget for an Investor-Ready "Use of Proceeds"

Presenting this detailed financial plan to investors or the board requires a different approach than internal modeling. They do not need to see a 50-tab spreadsheet in the main pitch deck. The goal is credibility, not overwhelming detail. Your primary "Use of Proceeds" slide should bundle the entire US expansion effort into a single, defensible line item.

For example, a line item could read: "US Market Entry & Initial GTM Team: $1.5M". This figure is the confident output of your detailed model, representing the total projected Net US Cash Burn over the first 12 to 18 months. It signals to investors that you have a thoughtful, well-researched plan without bogging down the main narrative of your presentation.

The detailed breakdown belongs in an appendix, ready for due diligence. An appendix slide should present a simplified summary of your budget, often structured using your three cost buckets and a phased timeline. This allows you to answer detailed questions if they arise, demonstrating rigor and foresight. For instance, you could explain that Year 1 costs are projected at $792,000, with Q1 costs at $78,000 (including $10,000 in setup fees) and scaling to $353,000 by Q4 as the team grows from one to several employees. This format is clear, professional, and directly supports the top-line number in your main presentation.

Key Principles for a Realistic US Expansion Budget

Successfully budgeting for US expansion as a UK startup hinges on structure and realism. You can avoid common pitfalls by embracing a few core principles. First, accept the two-entity reality from the outset and plan for the operational complexity of managing a US subsidiary. This includes separate accounting and compliance streams.

Second, use the three-bucket framework of One-Time Setup, Recurring Fixed, and Per-Employee costs to ensure nothing is overlooked during your financial planning for US launch. Most importantly, always calculate the fully loaded cost for each US employee, as benefits and payroll taxes add a significant premium to base salaries. This is often the largest source of budget variance for British companies expanding to the US.

Model the phased impact of these costs on your cash burn and runway, as this is the metric that truly matters for survival and growth. Finally, present your plan to investors with a clear, summary-level "Use of Proceeds" figure, supported by a well-organized appendix. This approach demonstrates financial discipline and strategic foresight, building the confidence needed to back your international growth. Explore the Use of Proceeds Modelling hub for additional templates and tools.

Frequently Asked Questions

Q: What is the biggest budgeting mistake UK startups make when expanding to the US?
A: The most common and costly mistake is underestimating per-employee costs. Founders often budget using only the base salary, forgetting to include the significant additional expenses of US health insurance (15-25%), employer payroll taxes (~9%), and administrative overhead like PEO fees. This oversight can quickly derail financial plans.

Q: Why is a Delaware C-Corporation the standard for UK startups entering the US?
A: US investors, particularly venture capitalists, are most familiar and comfortable with the Delaware C-Corp structure. It offers a well-established and predictable body of corporate law, simplifies governance, and is optimized for future fundraising rounds and potential acquisition or IPO events, making it the default choice for tech companies.

Q: Should we hire US employees directly or use a PEO from day one?
A: For the first several hires, using a Professional Employer Organization (PEO) is generally recommended. A PEO handles complex state-by-state payroll, tax compliance, and benefits administration. This allows a small team to offer competitive benefits and remain compliant without needing an in-house HR function, reducing risk and administrative burden.

Q: How long does it take to set up a US entity and become operational?
A: The timeline can vary, but a realistic estimate is one to three months. This includes the legal process of incorporating the Delaware C-Corp, obtaining a federal Employer Identification Number (EIN), setting up a US bank account, and registering in the specific states where you will be hiring employees or conducting business.