Expanding overseas: Making the move
Adam Reynolds shares some of the key financial elements that need to be considered when expanding into new markets.
At webexpenses we have moved into both Australia and North America in the last 18 months, and the financial function has been a key component in the process. Based on our experience here are some of the key financial elements that need to be considered.
The first stage in the process is the financial planning. Looking at what costs need to be factored in, we analysed over a projected three-year period, looking at a range of items including set up: recruitment, systems, people, development, marketing, events, office costs. These are all predictions and subject to fluctuation, but they should give you a view on what will be needed both initially and ongoing.
As well as costs you also need to consider return. As the market reaction is somewhat of an unknown, we scenario modelled our potential returns and looked at a number of different outcomes. General guidance suggests that anything under three years for an overseas entity to start being self-sufficient is very good.
Both your costs and return will largely be impacted by your investment strategy. Do you go for a high value investment strategy or a drip strategy?
High value is the “big bang” approach: invest heavily upfront, build teams and campaigns and launch big. The hope is to have an immediate impact and to achieve returns quickly. Moving into a new market has a number of uncontrollable variables, so a high-value strategy does not necessarily guarantee a high revenue return.
The drip approach is a slower start, learning and showing agility as you progress. By building a smaller but more dynamic team, once you have an awareness of the key factors in the region then you continue to drip in the investment, building the team and market awareness. Economically this is a safer plan, but returns will take much longer to yield. If you false start on any of the areas you’ll need to readjust and try again.
Key to the planning is to understand where the investment is coming from and how long it will last for. There are a range of options - self funding, equity release, borrowing, external investment.
The finance team must evaluate the options and ultimately plan for how long this round of financing lasts for, where and what the break-even point looks like and how it affects the rest of the business plans. On top of that the team must look at planning for success and failure, and what would be required if things went extremely well or conversely not very well.
Manage the expansion
The team must also look at what is required to manage the expansion. That means understanding and being able to manage the financial elements in the local country. Will the accounting practices and tax implications be managed in-house or will you use a specialist consultancy? How will the team forecast and invoice across multiple territories as well as the group? Will the software that is in place manage this or will new applications need to be put in place and embedded?
Once the territory move has started, the finance team needs to continue the agility. At webexpenses we generally review our plans/forecast on a monthly basis and revise up or down based on actual performance and also market conditions.
If investment is being exchanged into overseas currency the market performance will impact, for example the Brexit decision last year took the conversion of £ Sterling to AUD from £1=$2.2 to £1=$1.6. On a half-million-pound investment that fluctuation equates to $300,000 AUD, which had a severe impact on both our planning and execution – a quarter of our planned investment had just potentially disappeared.
Our recommendation would be to build in the continual reviews and also build a level of contingency, things will change and invariably there will be new items that weren’t predicted, work on the basis that things will cost more than expected and be agile.
Expanding overseas is an incredibly exciting period for any business and the finance team is a critical part of the process.
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Adam Reynolds is CEO of webexpenses, a fast-growing global expenses management software provider. With an extensive background in software and leadership, Adam joined webexpenses as Head of Sales in 2013 - leading the sales team to deliver exceptional growth in the UK.
He became the CEO of webexpenses in 2015, and now...