Entering new overseas markets: Seven must do actions
Posted: Thu 29th Aug 2019
New overseas markets can be an exciting but daunting prospect for a small business owner. Dawn Black, ICAEW accountant, Enterprise Nation member and owner of DXD, highlights seven key tips to consider when expanding abroad.
1. Business structure
Are you currently a sole trader, partnership or limited company? A key question to ask yourself is "is my current structure fit for purpose?". A lot of business owners very rarely revisit their original business structure and yet this could be a valuable review for you from a financial perspective. If you launched your own business a few years ago as a sole trader, it may well be time to review whether that structure fits with your expansion plans into new markets.
As a sole trader or partnership, you will pay income tax on your profits, make two payments every year (31 July and 31 January) and complete a self-assessment tax return every year.
As a company however, you will pay corporation tax on your business profits. You will also have more options regarding income extraction if you incorporate (form a company).
2. Research new markets
Do your homework on any potential new market. Is it economically and politically stable? Is it part of the EU? What is the current rate of inflation? What is the local currency? How far is it from where you are based? Is it expensive to fly there if you needed to? Is it English speaking? These are all factors you should consider. What is a lucrative new market for one person may not be lucrative for another.
Don't forget about the tax regime of the new market. Assume nothing. For example, VAT applies in the UK but not in the Channel Islands. Make sure your pricing strategy reflects any unique taxes that potential customers (and you) may have to bear.
Take professional advice from a reputable accountant or tax adviser if unsure. People often think they cannot afford to use such advisors but remember to ask yourself if you can afford not to.
If you are looking at expansion into new markets then it is likely that your turnover will increase.
Be mindful of the VAT threshold in the UK which is currently £85,000. Monitor your turnover on a monthly basis to ensure that you do not breach. Remember that you can register voluntarily for VAT.
Don't forget about Making Tax Digital for VAT which went live for qualifying entities for periods starting on or after 1 April 2019. This dictates how you submit VAT returns to HMRC and the nature of the books and records you must keep. The range of accounting software available is vast and HMRC will not recommend any particular software product, that responsibility is yours only.
Software prices tend to be charged monthly and range in cost depending on your structure and the range of functionality that you require. Often software providers offer promotions such as buy 12 months for the cost of six, so do your research. Check with your bank to see if they subsidise any product. Speak to your accountant and contemporaries for their advice but remember any software chosen must suit your unique business needs. Don't pay for functionality you don't require.
4. Delivery costs
How are you planning on getting your product to your customer? Are you going to post it, ship it or fly it? What about lead times and pick up points?
Look hard at the range of suppliers who can provide you with the delivery service you require at a cost you can afford and don't forget to build that cost into your overall product pricing.
What currency is your customer going to pay you in? Sterling, Euros or another?
Speak to your bank and ensure that you are getting the best deal available in the marketplace. What are the transaction costs? Do you receive a free overdraft? How are you going to be charged?
What about currency conversion costs? If a customer pays you in US dollars are you planning on holding a US dollar bank account or do you want those monies converted into sterling and paid into a sterling bank account?
Don't be put off by a bank who doesn't have a physical presence in your local town or area. Seek out the best deals on-line and see if they could work for you.
6. Have a wing-man
Sometimes it's difficult to see if your plan has an underlying issue when you're the one who is making the plan. Speak to family, friends or anyone you trust about your ideas. In this way, potential issues could be flagged or problems noted that you wouldn't otherwise see.
Having a trusted wing-man could save you lots of time and money. Don't be proud!
7. And finally, don't give up!
Everyone hits hurdles when they try something new. That's normal. The key is when you hit the hurdle to jump back up, dust yourself off, learn from it and keep motoring on.
As long as you believe in your product, have done your research and have a passion for what you're selling, you will succeed.