International expansion features heavily in many businesses that are in their growth phase and is about more than just establishing an overseas branch or subsidiary, or deciding on which market to lay roots in. While tech firms lend themselves to cross border activity by enjoying a high degree of seamlessness and scalability, other knowledge-based businesses can also enjoy the benefits by outsourcing certain back-office functions or cultivating international sales networks.

By accessing new markets, trading overseas can substantially grow revenues, reduce the cost base by sourcing cheaper products or services, and provide access to new sources of finance and investment. The rewards can be significant, but it’s vital for business leaders to properly plan and execute their expansion. The process can be costly, with errors causing substantial losses and diverting attention away from the main priority of growing the business.

By accessing new markets, trading overseas can substantially grow revenues, reduce the cost base by sourcing cheaper products or services, and provide access to new sources of finance and investment.

The value of financial modelling

Businesses should be crystal clear on their vision for expansion and the key drivers for making that cross-border step. Being able to consider why they are looking to expand makes it easier for businesses to answer the more practical questions of how, when and where. For every successful expansion, there has been another that has failed because the benefits and risks had not been properly identified.

Three key elements are the strategy, business plan and financial model. Business leaders are typically excellent at articulating the first, good at designing the second but often neglect the third, despite all three being of equal importance.

So why is financial modelling so important? Most expansion plans require investment and put a strain on businesses’ cash before yielding an overall benefit, exacerbating an already acute problem in many scale-ups. A financial model helps to quantify the cash flow impact of starting foreign operations and includes modelling for certain scenarios. If a business is looking at selling into a new market, with support from a local marketing campaign and sales team, financial models can show the maximum strain on cash flow, allow for contingency planning where growth may be below expectations, and even identify where any external funding is required.

Three key elements are the strategy, business plan and financial model.

When building a financial model, it’s important to consider the balance sheet. Despite its focus on generating additional revenues or lowering costs, the balance sheet will also reveal factors not immediately apparent in an income statement, such as capital expenditure for new offices and equipment, poor credit terms due to limited local trading history, and local tax factors, such as VAT and income tax payments.

Putting the right systems in place

With new operations comes the requirement to put in place new structures and systems. There is no one-size-fits-all approach to system building. A remote sales office will be subject to different motivations and pressures from an outsourced development team, for example. Despite this, there is one overarching concern: control. Even with the developments in communication seen in recent years, a foreign operation will by default be more independent than domestic subsidiaries and branches due to distance, language barriers, business culture differences, different developmental staging and local management naturally enjoying greater autonomy.

To mitigate against these risks, expanding businesses should invest time and effort in building robust monitoring systems. Overseas operations should be required to report on a regular basis, maintain records on a common, accessible system (advances in cloud technology have substantially improved opportunities in this area) and make themselves available to a routine inspection or even an audit.

Founders and leaders should remain closely involved, not only at a strategic level but also on the relationship side. Communication with local teams is vital and whilst it should be clear that they are responsible to central management, their feedback should be listened to and where possible, acted upon. This has the dual benefit of reducing reliance on ‘management by numbers’.

When looking to expand overseas, it is crucial to fully understand the local laws and regulations to avoid being caught out.

Ultimately, the more freely data and information can flow, the lower the risk is of head office losing control.

Regulatory and compliance restrictions

When looking to expand overseas, it is crucial to fully understand the local laws and regulations to avoid being caught out. These can vary greatly from country to country and fall into three broad categories: employment law, taxation and reporting requirements. There may also be specific rules where businesses are operating in certain industries, such as manufacturing or financial services.

One key recommendation is for businesses to consult with local legal and financial experts before embarking on expansion. Good advice early on will always pay for itself, such as when considering employment and sales taxes in particular. By their nature, such taxes give rise to a liability on recurring transactions, meaning that if something is structured incorrectly, an error is made on every sale or every time the payroll is run. Left unchecked, the financial implications of these errors can be severe. This is especially true of the United States, where each state has its own employment and sales tax regimes, in addition to those imposed at a federal level, meaning there are two levels of legislative compliance to contend with.

Most law and accountancy firms are members of international networks and will be able to make introductions with accredited local experts at no cost. MSI Global Alliance, for example, consists of over 250 firms in 100 countries, allowing businesses to access coordinated advice both at home and in the country of expansion. This guarantees clients receive a global perspective, taking into account any effect on the UK position.

For the last 15 years, Canada-based Payroll Solutions International Inc.has been building a global network to offer effective services and support for global expansion in all types of organisations. The company’s involvement in this area of business over the past 15 years has taught the team a great deal, including what not to do. Bellow, President and CEO Michael D. Cote shares his top six rules to follow if you consider global expansion.

Rule number 1: Do your research.

You need to use the tools that are available through the Trade Commissioner of Canada and Export Development Canada (or the equivalent of these bodies in your jurisdiction) to understand the markets you’re trying to enter as well as the pitfalls. Doing the research will save you time and money while correspondingly reducing the number of mistakes.

Rule number 2: Get representation.

You need to have representation in the local market you’re trying to enter by way of agents and advisers. First and foremost, you need local accounting and business formation advice before you spend any money setting up a local branch or subsidiary. Most CPA firms around the world can provide extensive advice on business formation for foreign companies. Don’t go and set up your company until you have received this advice. Going directly to a local law firm to launch your company will often leave out several necessary steps. It’s better to work with the Accounting firm first, then follow up by adding the law firm to set up your company. Global advisory firms who do this kind of work typically provide both services in-house

Rule number 3: Don’t assume you can get a bank account for your business in that market.

One of the biggest headaches in global expansion is banking. It’s not an easy process in most countries – in some countries it’s due to anti-money laundering legislation, but most of it is just plain logistics. You need to have local representation on the bank account if you’re going to be successful in getting the kinds of services you need.

Rule number 4: Be clear about what you are offering.

You need to research whether you can sell your product or service in that jurisdiction before you attempt to do so. If your business is a tangible product seller, you may require a local agent. If you’re a services company, you may be restricted in delivering your service by whatever trade agreements are in place with that country.

Rule number 5: You need to understand local labour requirements.

Expanding globally requires an understanding of local labour laws and hiring practices. Labour legislation can be complex and can contain serious penalties for transgression. Hire advisers who can walk you through the process and document what is required.

Rule number 6: Understand your financial requirements.

Get your finances in place beforehand and make sure that you have export insurance on your receivables. By going through this process at the beginning you will avoid losing money, particularly if you experience unscrupulous customers who attempt not to pay your bill.

About Payroll Solutions Inc.

Payroll Solutions International Inc. is a member of the Amesto global network, operating in more than 100 countries around the world. Through this network, PSII can offer employer and corporate services to organisations expanding globally through a combination of local representation and technological applications.

Contact details:

Payroll Solutions International Inc. (PSII)

557 Massey Road

Guelph, ON, Canada N1K 1B3
Website: www.psiint.ca

T: (519) 822-4351

F: (519) 821-9785

By Zak Goldberg

Much like any new venture with a business, it’s a smart idea to first fully assess a number of key financial considerations with your international expansion, to make sure it’s the right move for your company.

International expansion can bring a wealth of benefits including: increased sales, more exposure for your brand, opportunities to work in other niches and much more. So, before you start making your first steps abroad, think about some of the following to get your finances in order:

The Cost of your Expansion

The first place to look is at the possible expenses incurred from your expansion. This might cover a variety of areas like:

• Time and staffing dedicated to researching and scouting overseas locations and markets
• The costs of purchasing a new headquarters
• Travel time between your current and new location
• General staff recruitment, training and provisions
• Machinery, tech and facilities for your new site(s)
• A new fleet of vehicles for your logistics

The next step here is simply be realistic about whether or not a full-scale overseas expansion is something your business can afford.

Potential Sales Revenue

When researching the location for your expansion, you will have probably looked at aspects like how receptive the markets are to your products or services. As well as this, you should use this information to inform the potential revenue you could expect from successfully working in this new country. Having a clearer idea of the possible ROI at stake could also help you determine how quickly you could recover financially from your expansion investment.

Extra Overseas Operational Costs

You’ll already appreciate just how much you need to manage and think about for your overall domestic operations and ultimately the same will apply for any locations you set up and start running overseas. You can’t simply double the typical costs of this though as you might also need to pay for local staffing or external support in areas like:

• Translation work on your company’s website, products, branding
• Networking and understanding the cultural nuances of the country
• International supply chains to support your company
• Sourcing materials and goods for any manufacturing
• The general work carried-out on and off-site

Additional Support

After you’ve done some initial planning, you may also want to look into how you can source additional funds to support this. The bigger your cash reserves the better placed you’ll be to facilitate your growth and there are several different ways you could go about this.

You might want to look at securing a business loan from a bank or lender, or pitch your expansion ideas to your investors to see if they put forward more capital for this. Anything you can gain financially, whether large or small, can be incredibly valuable.Final Thoughts

Once you have taken the above into consideration you should then be in a better place to go ahead with your expansion. A final piece of advice here would be to make sure you regularly report and reassess your financial situation, as there might be instances or circumstances where you need to spend more than you first thought. This way you can move money around to support the different areas of your company that may need it.

About the Author:

Zak Goldberg is a Law & Business Graduate from the University of Leeds who has chosen to follow his aspirations of becoming a full-time published writer, offering his expertise on FinTech and business economics.