Budgeting for International Expansion

Transcription

1 Budgeting for International Expansion March, 2016

2 INTRODUCTION FELIX NDELOA, FCCA, MBA Director, Advisory Services, Radius Expert in Higher Education and Not for Profit Consulting

3 INTRODUCTION This presentation is intended to give a high-level understanding of some of the most important items to consider when budgeting for an overseas expansion One of the biggest mistakes that many organisations make when planning for overseas expansion is not adequately accounting for the tax laws, employer obligations, cultural nuances and other quirks of their target countries. 3

4 INTRODUCTION While no one can predict the future, informed budgeting and forecasting from the outset can help you avoid unexpected surprises, such as significant cost overruns, a longer time period to become fully operational, hiring roadblocks, tax penalties and more. Arming yourself with as much knowledge as possible before the budget process is crucial to avoiding headaches down the line. 4

5 BENEFITS OF BUDGETTING Put simply, budgeting helps avoid surprises; Reliable estimates justify international expansion Compares investment vs return in different countries Sets profit and loss (P&L) goals 5

6 GETTING STARTED Creating a realistic budget will involve research and multiple constituents across your organization. The process may take months and numerous iterations. As with your domestic operations, your international budget will be done annually. 6

7 THE BUDGETING PROCESS Ideally, your international budget should be detailed and robust. It should include a profit and loss statement that ties to your end-of-first-year balance sheet and statement of cash flows 7

8 THE BUDGETING PROCESS For foreign operations, you will need to consider three budget factors: Foreign exchange rates, including transaction rates and translation costs Inflation rates for the new country Interest rates for the new country Doing the necessary homework during the budgeting process will take considerable time and effort, but will pay dividends in the end 8

9 KEY COST ITEMS FOR BUDGETING Common expenses associated with expanding into a new market can be categorized under the following headings; Setup expenses Staff-related expenses Tax-related expenses Sales and marketing expenses Office-related expenses 9

10 SETUP EXPENSES Generally, it could take anywhere from 3 to 9 months or more just to set up operations in a foreign country. Some countries allow foreign businesses to establish an entity without a physical office space or a local bank account. Other countries require a physical office, and in some countries both an office and a bank account are required. The more requirements, the longer the setup time 10

11 SETUP EXPENSES Many firms opt to start with serviced offices or flexible workspaces, which are fully furnished and offer host-country reception and office management. Typical set up expenses will include the following; Legal and tax consulting fees Legal entity establishment costs Rental / Real Estate Costs Bank account establishment Other set up costs will include all of the standard administrative and operating expenses, such as utilities, water, landscaping, licenses and permits, office furniture and fixtures, maintenance and repair, and waste removal 11

12 STAFF-RELATED EXPENSES Operating in a foreign country presents unique challenges from an employment perspective. Issues such as national health, work visas, employment contracts and risks of unfair dismissal claims vary by country. The fastest way to staff your new operation may be to hire competent local nationals. Yet there may be sound business reasons for sending expats, either for a short or long term, to ensure that your business will run as expected. Budget for all possibilities. 12

13 STAFF-RELATED EXPENSES Typical staff-related expenses will include the following; Salaries and benefits Employment contracts translation Mandatory salary increases Mandatory bonuses Pension funds Social security Unemployment insurance Health insurance Vacation, sick time Payroll services Meal allowances Travel expenses, including site visits Tracking employee travel Expat expenses Tax equalization/ / protection Immigration (work permits/visas) Cultural training Anti-corruption training Security services Employee termination obligations 13

14 TAX-RELATED EXPENSES Typical tax related expenses will include the following; Direct taxes e.g. corporate taxes Indirect taxes, including VAT Import /export obligations Accounting and auditing fees Transfer pricing reports / documentation 14

15 OFFICE-RELATED EXPENSES Typical office-related expenses will include the following; Office rent Office equipment Computers Software Communication services / phones Utilities License and permits Maintenance and repairs Waste removal Ongoing fees and taxes Supplies Health and safety inspections Building security 15

16 SALES AND MARKETING EXPENSES Typical sales and marketing expenses will include the following; New New sales and marketing materials Advertising, PR and lead generation Website translation 16

17 OTHER EXPENSES Other important costs to be considered include; Ongoing regulatory expertise Data protection compliance Winding down operations 17

18 CONCLUSION International expansion can present powerful opportunities A clear budget gives you the best available information to understand your first year of operations and effectively forecast results. Many organisations prepare rolling forecasts, incorporating actual results each month and then projecting out another 12 to 18 months. Remember that it can be tricky to investigate material variances, positive or negative trends, or unusual activities in your overseas office because of distance, time zone differences and accounting issues. 18

19 CONCLUSION TNE: tremendous new earnings or totally negative equity? My view: A detailed and robust budgeting process will be significant in getting the answer to this question right. 19

20 OVERVIEW Radius Global Growth Experts Radius helps companies expand and win globally. Services include: International accounting Finance Banking HR Legal Compliance services Tax Radius delivers support and expertise through managed services, advisory services and OverseasConnect, our integrated cloud-based software platform. 20

21 Felix Ndeloa Director, Advisory Services, Radius radiusworldwide.com 21