Complete guide: the consumer goods expansion accounting checklist
- •What Accounts Need to Know When Planning for International Expansion
- •International Tax Considerations
- •Maintain Speed And Efficiency (While Expanding)
- •Maintaining Transparency and Consistency in Budgeting
- •Inventory Management and Accounting
- •Cash Flow Management
- •Controlling Transaction Fees
- •In Conclusion
What Accounts Need to Know When Planning for International Expansion
With the global eCommerce market set to grow to $5.4 trillion in 2022, it's easy to see the massive upside of expanding to new markets. For this reason, many brands have made international expansion one of their top priorities to grow their revenue.
It's relatively simple to reach new markets, and often it even becomes more profitable if you are advertising in less competitive ones. However, before you plan on selling abroad, there are several considerations so that expanding internationally is prosperous rather than a big expensive headache.
This complete guide gives everything you need to keep in mind before you start expanding your consumer goods eCommerce business internationally.
International Tax Considerations
There's no escaping taxes, no matter where you sell your goods. For this reason, making sure you have a solid understanding of your tax implications in all the territories where you sell should be one of your priorities before entering new markets.
More prominent brands usually tend to employ tax professionals (among other good habits). However, this may not be an option for smaller brands. The good news is that there are ways to gain the tax expertise you need without onboarding new team members.
The best way is by working with partners who have ample experience in international markets to make your growth strategy significantly more efficient.
Focus on being customer-centric on your tax guidelines
Once you have the international tax know-how in place, the next step is making sure that your international customers feel confident in your brand. And one of the best ways is by making sure that they understand your brand's knowledge in their market.
The key to this is ensuring effective communication with your customers. Your clients knowing what they need to means having dedicated messaging for each region you serve.
Here are three of the most significant ways to segment and communicate properly:
Website: Your website needs to have front and center all the information your international customers are looking for to feel confident you can deliver to them.
Email Marketing: Having a segmented email list by region is one of the most effective ways to boost your international sales. An email has the best ROI across marketing channels and is cost-efficient.
Social Media: Like email, having dedicated social media channels for your international customers is the best way to increase their trust in your brand.
Keep tax considerations in mind before entering new markets
How you plan and prepare before entering new markets will define how successfully you can expand. The best practice is to make sure that expanding into new markets is part of your strategic plan.
This way, you will make consistent progress in all the areas involved in your approach to international markets.
There are two approaches that most brands take when entering international markets.
Test first and then scale: This approach essentially means beginning with a small test run to ensure the whole expansion project is feasible. By going with this approach, you limit your risk and can collect valuable data for a more significant launch if all goes according to plan.
Jump into new markets with a healthy expansion budget: If your budget allows, going big into the new markets is the best way to maximize your profits. Having the necessary know-how and baseline data is key to making this approach work.
Maintain Speed And Efficiency (While Expanding)
Today’s eCommerce customers have very high expectations regarding order fulfillment, shipping speed, and efficiency. Of course, you can blame Amazon for these high expectations. However, that doesn't mean that customers are unrealistic.
It just means that you need to handle a couple of aspects to make sure you meet your customer’s expectations. It also means that you can’t compromise on your service to international customers. It has to align with what you offer to your domestic market; otherwise, they might go with a local option.
Have open communication
Chances are you don't have the same supply chain and logistics infrastructure as Amazon. And that's ok, your customer will understand. But to do so, you need to make sure you communicate it with your customers.
By having proactive communication with your international customers, you’ll set realistic expectations. Having the correct information means your buyers make the best decision for their needs — creating a positive customer experience.
The last thing you want is for them to feel they had a negative experience with your brand due to some aspect that is out of your control.
Use speed and efficiency forecasts to guide how quickly you can expand
You need to know how expanding to each region will impact your ability to fulfill orders and provide effective customer service. To this goal, forecasts can be an excellent tool to help you prepare your organization.
Since you won’t have any historical data to rely on, forecasts and scenario planning can help you develop action plans for each scenario you come across.
Remember that expansion at all costs may not be the best recipe for your long-term growth.
Instead, prioritize sustainability and maintain your customer service level throughout your growth process. That way, your customer service won't suffer, and you avoid poor reviews from your customers.
Maintaining Transparency and Consistency in Budgeting
Expanding to new regions is a significant challenge for your financial team and budget. It's a further aspect of your yearly budget, and as such, you need to pay special attention to make sure your budget is met. It's for this reason that transparency and consistency go a long way in making sure your budget is effective.
Here are some of the actions you can take to make your budget transparent and consistent during your international expansion phase.
Create all your documents with multiple audiences in mind. This way, you keep the information you present actionable.
Keep it short and straightforward. The reality is that your operations and management team will have their hands full while entering new markets. For this reason, keeping all your documents short will maximize their impact.
Tell a story. It is likely that during an expansion phase, many of the team members that view your budget don't have a finance background. It doesn't mean that they won't find utility in the data. It simply means that is not their primary concern. For this reason, telling a story will help you make the data more relatable and actionable.
Inventory Management and Accounting
Your inventory is the lifeblood of your international expansion. The last thing you want is to invest in your marketing, have a successful launch, and then come across the nightmare scenario that you don’t have enough inventory to fulfill all your new orders.
The good news is that you can avoid sending the dreaded delay in your order email to your customer by making sure you update your inventory management to meet the stress your new orders will put on it.
Prepare in advance with your forecast
Having enough inventory to take an international expansion can easily be one of the most expensive elements of the whole project. Not enough stock, and you won't fulfill all the orders. Too much inventory and you can potentially lock up too much of your cash flow.
Getting right will be a balancing act. It will be unlikely to be 100% accurate, but the next best thing is to rely on your sales and marketing forecast.
Consider implementing new tools
It's essential to take the time to make sure your existing inventory management infrastructure can meet the demands that will be placed on it with your international expansion.
Also, keep in mind that even if your current setup can deal with the extra demands, it might not be the best or most effective solution. So make sure that you invest the time in evaluating other options like new inventory management software and then calculate the costs of all the different options.
What may seem like a further expense might end up paying itself if it makes a dramatic impact on your efficiency.
Audit your inventory
Auditing your inventory becomes critical during an international expansion. Like in the previous segment, the first step is to make sure you can run the necessary audits. The second aspect is to ensure that the information you gather is timely and actionable.
So go over your auditing capabilities and determine whether you are good to go with what you have or if a new auditing approach needs to be implemented.
Cash Flow Management
Selling in new regions can put a whole new degree of strain on your cash flow. And during an expansion phase, not having enough cash to meet all your demands is not an option. For this reason, you need to have several cash flow contingencies in case something unexpected happens.
A practical way to approach your cash flow is to focus on these three areas:
Access to extra capital: Make sure you have a way to access additional capital if necessary. So investing your time opening an emergency line of credit or making sure you can expand a current one are good options.
Visibility: Having visibility on how your cash flow is impacted by entering new markets is important to prepare adequately. If you haven't already, adding automated systems or an automated dashboarding tool can help increase your cash flow’s visibility.
Avoid delays in payments: Having the confidence that all your expenses to vendors, suppliers, and employees are met is essential during an expansion phase. Being able to rely on a payroll automation system is a great way to reduce the likelihood of human error and missing out on payments.
Controlling Transaction Fees
In today's competitive eCommerce world, the reality is that profit margins can be razor-thin.
This doesn't mean it can’t be profitable, simply that you need to make sure that there are now unforeseen transaction fees or that the transaction fees you can’t avoid are managed as best as possible.
Here are three areas where you need to make sure you manage your fees.
International Credit card transaction fees: Most banks that focus on serving local businesses often don't have competitive international transaction fees. So before moving forward with your existing banking solution, make sure that the international payment options you offer don’t incur fees that will dramatically impact your profit margin.
Currency exchange fees: Currency exchange fees can make a big difference in your profits. Most Australian banks will charge between 3-5% on top of the interbank exchange rate. Essentially, these fees are just a hit to your profits that you need to factor in. A better solution is to find a payment partner that understands the needs of international eCommerce businesses and offers more competitive solutions.
Transfer fees: Another area where many businesses take a hit is on transfer fees. Many online selling platforms have unexpectedly high prices when transferring your funds to your Australian accounts. In some cases, you can incur double conversions, aggravating the problem. A double-conversion is where your payment processor converts your funds twice to multiple currencies. For example, it will first convert EUR to USD and then to AUD.
Expanding to new regions can be incredibly profitable and is a great way to find sustainable growth for your consumer goods eCommerce business. But only if you can make sure all the new fees you will be subject to don't erode your profit margin. Otherwise, you’ll find yourself overly invested and find it ends up hurting your business.
The good news is that Airwallex can offer you a series of scalable solutions that can make sure that your expansion to new markets is fast, efficient, and above all, profitable.
Related article: The ultimate guide to paying overseas vendors
Evan Dunn manages the growth of Airwallex's SMB business in the US through marketing avenues. Evan is a generalist with expertise in SEO, paid media, content marketing, performance marketing and social selling. He also enjoys slam poetry and waffle making.