Every business owner starts their company with an aim and objective in mind. It may vary for every individual. However, among the few common goals like maximizing profitability and increasing sales, expansion into foreign territory stands out the most. While working in one country, a company establishes its name and presence and captures a target portion of the market. However, when the demand gets saturated in the native place, strategic goals need alignment, customer or supplier relations demand, or other factors may lead the business towards international positioning. A company may test its strength in international waters by expanding into global operations. However, it is highly resource-intensive and requires consideration for numerous details that you might ignore. Accounting and bookkeeping services constitute one such component that needs minute attention to the factors affecting a business’ growth internationally.
The following points describe the most crucial accounting and bookkeeping service aspect in conducting international business that is a must for them to consider:
1. Multiple Currency Management:
When a business sets its foot across the globe, it has to deal with multiple currencies to sustain itself in the particular market. For example, A US-based company transacts in dollars, while an Indian company uses Rupees. The fluctuations in the value of these foreign currencies add to the complexity of bookkeeping services. The transaction and settlement date may vary, but the changes in foreign currency are constant. So, you may have entered into a cheap transaction, but these fluctuations can increase your expenses.
You are an Indian business that enters into a sale agreement with an American company. Let’s assume that you sold them Rs. Ten lakh’s worth of products that account for US$ 16,667 at an exchange rate of 0.6. Now, you will enter this amount in your books at the time of sale. If at the time of payment, the exchange rate falls to 0.3, you will gain foreign currency as the US company will have to pay more in dollars.
It may sound simple for one time, but adding a few more elements and voluminous data can make it highly complex. Also, the financial reporting of foreign currency transactions in the bookkeeping services of an international business may differ. You may have to report the gains and losses of financial transactions in the income and cash flow statement under separate heads.
2. Structure of the Organization:
Before expanding into international territory, a business needs to know its current organizational structure and the changes required in international trade. It may need to have a physical presence in the foreign country or meet the capitalization requirements of the laws. Businesses must assess their needs, capabilities in various activities, including payroll processing services, regulations, and other factors that suit the operations appropriately.
3. Legal Compliance:
A contract can be valid only when it fulfills the statutory requirements that apply to it. For instance, businesses may require preparing the agreement in the native language of the country for it to be enforceable and binding. Therefore, a firm must possess the laws in the respective countries they are expanding. Also, firms may need to carry out a statutory audit if their volume of transactions exceeds a specific limit.
4. Banking considerations:
The banking scenario differs significantly in every country. The contract should clearly state the currency in which the business will receive its payment. Many countries have strict rules regarding their foreign direct investments. Companies must hire a local government representative to ensure their bookkeeping services comply with the laws laid down by the country. Foreign jurisdictions have unique banking requirements that business owners must know to avoid trouble. For example:
In India, you need to register many transactions with the Reserve Bank of India.
In Brazil, you need to contribute to the capital and register loans with the Central Bank.
In China, the FDI regulations are pretty strict, with every capital contribution going through the eagle eye of the Chinese auditors.
Studying and complying with these requirements facilitate smooth cash flow from foreign to native country’s bank account.
5. Tax and cash flow:
The tax and accounting implications vary significantly for every business in international waters. There might be additional filing requirements for some based on their nature and volume of transactions. Since it is a costly investment, companies send their best-performing employees to conduct the activities overseas. In return, these employees can sign an equalization agreement where companies consider the personal tax impact. Companies must clear the financial responsibility of employees’ sustenance in the foreign country, their back-and-forth trips and several other factors.
Also, they need to learn about the numerous local and state regulations and their impact on the company’s cash flow. There are varying laws regarding tax deductions for the company in different countries. Also, pricing methods differ, and several norms affect it.
Conducting business globally is pretty challenging, considering the numerous factors affecting it. Companies must ensure their services comply with all the regulations and are fit to serve people worldwide. The accounting and bookkeeping services also suffer and require local expertise to handle it. Therefore, being in contact with a local professional can be highly beneficial for the firms.