Budgeting for International Expansion: The Costs Businesses Forget
Expanding a business overseas can be hugely rewarding. For example, moving into the European market opens up your business to a potential 740 million new customers, while Asia’s population sits at more than 4 billion.
However, going global also brings a lot of new challenges. As such, it is vital that business owners carry out research before expanding internationally, and are fully prepared for the impact of cultural differences, local competition and trading tariffs.
One of the biggest concerns business owners face when expanding overseas is cash flow. While you may have created a new business plan and budget, growing internationally can have unforeseen costs.
Each country has different employment laws and as such, expanding to some countries can be much more expensive than others. This is because the rules regarding employee termination can be very different.
In the UK, for example, employers are required to have a fair reason for dismissal (such as behaviour or capability) and provide termination notice. A hearing may follow, as well as any redundancy or salary owed. This process is simpler if the employee has been with the company for less than two years.
In France, however, employers may have to pay up to 18 months worth of salary when terminating an employee, something that can harm company cash flow.
Expanding overseas is not as easy as replicating your business model and finding premises. In addition to employee laws, every country also has rules and regulations for registering a company.
Setting up a company in America is relatively straightforward: simply complete an annual report, have a registered agent, and pay any taxes owed. But other countries are not as clear-cut.
Setting up in China, for instance, can take almost a year, involve constant contact with the home office and require a business license.
Owning a business that operates in multiple countries requires currency exchange. The exchange rate can have a huge impact on company costs and profits, affecting wages, manufacturing, and also delivery, even if you ship with an international courier like Parcel2Go.
As such, when calculating the cost of going global, factor in exchange rates and take fluctuations into account. Without doing so, your expansion could come to a halt.
Choosing to expand your business overseas is a big decision, and one that should not be made lightly. Before committing, carry out research and budget for the above unexpected costs to help your international growth be a success.