Financial considerations of your overseas expansion
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:
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.
Personnel: To ensure you’re equipped to look after your new international empire, it’s recommended that you have a lawyer, banker and accountant on-hand, who are all able to specialize in cross-border transactions and what your business needs to be aware of when selling internationally.
Transfer pricing: If your company has intellectual property or a patent needed to manufacture in another part of the world, you may need to deal with transfer pricing. Even if your business is transferring the IP to another (likely new) arm of the company in another country, there will be a transfer fee. Factor this in when doing a cost study for globalization.
Effect on cash flow: Fulfilling more orders often means extending more credit while increasing your expenses. You will have to pay for materials and staff time to handle new business, while waiting for payment for these orders. Determine if you can meet your cash needs based on your current cash and available credit, the credit terms you offer customers and your two sales scenarios. An expansion might require you to take out a loan, negotiate new vendor and supplier payment terms and to change the credit terms you offer customers and clients.
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.