Having a well thought through strategy to manage your growth and expansion abroad is vital. Below are a few simple tips on what to consider as part of your strategy and how this can impact on your cashflow projections.
Spend time researching your overseas market by visiting the country. Gain as much local knowledge as possible, as this will help you to:
- Identify who your customers are
- Plan the activities required to meet your customers’ needs and the capital required to set up supplies
- Develop market penetration strategies
- Spot the risks and opportunities.
This will, of course, take time and incur costs but will prove invaluable in the long run
Consider taking local professional advice in areas such as banking, legal, accountancy, employment law, tax, and so on. Having the correct systems, frameworks, advice and paperwork in place early in the process can save you time later on as you focus your attentions on global growth.
Structure and forecast
Once you have spoken to local professionals you will have a better idea of the structure for your international operations. You should then break this down into deliverables, revenues and costs. This will help in identifying in more detail the unique costs of expanding abroad.
Make sure you have a good management information system in place once you start your overseas trade. As well as key information covering qualitative and financial performance, you should also be able to access accurate and timely information on such things as exchange rates and transfer pricing.
Foreign exchange (FX) and tax
FX gains and losses can have a material impact on your financial performance and, therefore, cashflow. Speak to an accountant and to your bank on the best strategies for your business to try and mitigate some of the risks. Also, check with your accountant about any local withholding taxes that may be applicable to your business. If you are not prepared for these deductions then it can seriously affect your cashflow.
Tax treaties between foreign countries and the UK will be important. Make sure you are aware of how tax affects your transfer pricing and also how profits (dividends) are taxed when paid back to the UK holding company.
Discuss the Controlled Foreign Company legislation with your accountant. These rules ensure that profit isn’t accounted for outside the UK inappropriately and the rules are often quite complex.
Familiarise yourself with the paper work needed to deal with VAT and custom duty. Understanding the VAT treatment is important, as it differs between EU and non-EU countries.
Pay special attention to any legal documents you have to sign in your target country – there may be a range of different issues which arise as a result of operating in a particular country.
All of the above can have a major impact on cash and so you need a robust cashflow projection before you embark on global expansion. Once you have drafted your cashflow forecasts, give them to your accountant for review – that way you can be certain a strong foundation is in place for successful international expansion.
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