Looking After The Finances When Your Business Goes Global
Thanks to the internet, almost every business these days is able to take advantage of the international marketplace. If you have a website and a way of accepting payments, then you effectively have a shop window in every country in the world. All you need is a way to get people to look in that window, and then to encourage them to come in and spend their money.
In some cases, you may want to have more than just an online presence in a foreign country. Opening a physical retail outlet or even a manufacturing base abroad can be an expensive and time-consuming process, not to mention a potential logistical nightmare. But it can make financial sense if you already have a significant customer base there, or have good reason to think it could become an important market for your business.
Handling financial transactions
One of the most pressing concerns for international businesses is how to manage the sending and receiving of payments in foreign currencies. Initially, most small businesses will use their regular bank or a service like PayPal purely for convenience. If you find that you are doing business abroad on a regular basis, these are not the most cost-effective methods to use.
Banks generally offer poor exchange rates compared to other providers and also often charge hidden fees in addition to their upfront charges. In addition, a lack of transparency makes it difficult to compare like-for-like before you commit, and you often can’t see the full cost of a transaction until after it’s been made. Studies show that small to medium-sized businesses suffer disproportionately in terms of making international payments through banks.
One alternative is to use a forex (foreign exchange) broker to help you find the best international payment provider for your needs at that moment in time. With exchange rates and other factors changing several times in the course of a day, it can be worth paying a small commission to an expert broker that knows how to navigate the markets. City Index is often recommended as a London-based multi-asset broker with its own cutting-edge global trading platform.
The time factor
Remember that payments could be delayed if they have to change currency before they are received, sometimes for several days. It’s vital to factor in that potential delay when budgeting and scheduling payments. Late payments on your part could incur an extra charge. If you are paid at the last minute but the transaction takes time to process then this could cause serious problems with your cash flow if you’ve not anticipated this eventuality. Make sure you’re aware of any bank holidays or religious observances in other countries that might delay payments as well.
The health of the market
Keeping an eye on the economy of any country you do regular business in will help you to protect your finances. Knowing what price to set for your product that is competitive, affordable and still gives you a reasonable profit, will depend on your analysis of consumer spending power in that country. Look at factors like the gross domestic product (GDP) and the consumer price index (CPI) in order to assess whether the market is in good health and whether inflation and/or a hike in interest rates seems imminent.
Other indicators to watch include any statements from the country’s central bank on future policy and employment figures. These are possibly the most important as not only do the unemployed lack any real disposable income, but a high level of unemployment also suggests an equally high level of low-paid jobs and also wider economic stresses.
Making yourself at home
If you are setting up a physical business HQ in a foreign country, then you might want to consider opening a bank account there. Doing so will cut down on the amount of money you have to send from one country to another, and will reduce the uncertainty caused by exchange rates. Make sure that your money is protected, especially if the country in question seems politically or economically volatile. You might also want to look into the pros and cons of having your business in that country as a separate entity from your home business for tax and other purposes.
There are many advantages to doing business abroad in terms of increased sales and wider brand exposure. You will become less reliant on your local market and will have a more diverse and reliable customer base. But managing a global business requires you to keep an eye on the financial markets as well as the world economy. This will help you to find ways of keeping the money moving as smoothly and efficiently as possible.
Photos courtesy of gettyimages.com