How to: finance a move to overseas markets
Deciding to export carries significant costs for your company, because by definition your target customers are much further away than at home. Moreover, your company is unlikely to be paid until after delivery, so your business will incur many of those costs upfront – potentially putting a strain on your cash flow. Investigate your options for financing your move to export.
At the very least, you will need to send representatives to the new market on a regular basis for up to a year or longer. You may also need to work with consultants or retain professional services providers in your chosen market. You may need to develop tailored marketing materials or provide sample products. Depending on the nature of those products, the cost to ship them will vary. Some costs can be predicted in advance, such as:
- Office rent
- Shipping and import duties
Other costs are not fixed, and they include:
- Staffing costs
- Currency fluctuations
A thorough export plan will help you to budget for all of these elements.
Planning your export finance
Planning your export finance broadly revolves around the costs involved in setting up and running an export operation and the approach you need to take to managing payment risk. Credit management, export credit insurance, letters of credit, invoice discounting and factoring are just some of the issues to consider. You also need to consider the lead-time before receiving your first order and the length of your sales cycle, which can vary from market to market. For example, what are the cash implications for funding a sales cycle of 18 to 24 months? Consult your financial advisor or bank for advice on this.
Financial supports for exporters
There are several options available to you when looking to fund an exporting strategy:
- Retained cash reserves in the business
- Your business bank may be able to assist you with letters of credit
- Export-focused agencies such as Invest Northern Ireland and Enterprise Ireland
Export checklist: tips for export success
- Discuss facilities with your bank to ensure credit when exporting
- Be aware of potential payment delays when exporting – test how this could affect your cash flow.
Case study: CDE Global
CDE Global (www.cdeglobal.com) of Cookstown, Northern Ireland, manufactures and supplies materials washing equipment for quarries and mines worldwide. Founded in 1992, the company has experienced admirable growth over the last 10 years based firmly around an export and product development strategy which has taken CDE into more than 50 countries across the world. Almost all of its business is now outside Ireland. Brendan McGurgan, Managing Director, talks about how CDE financed its expansion abroad.
How have you financed your moves into new markets?
We’ve financed the growth into new markets ourselves, putting the required infrastructure in place including the recruitment of business development and engineering teams throughout designated
strategic regions across the globe. We’ve invested our profits from the business: it’s been entirely financed through our retained reserves. Regarding the question of property, we’ve only ever acquired what we needed for the strategic development of the business, to support capacity requirements and enable business growth. Fortunately, we did not get tempted to speculate on property during the well-publicised boom period. Our primary bank has always been supportive during our growth.
“We have facilities with our bank to manage letters of credit which is critically important when exporting”
What financing options have you used the most, and why?
We have traditional working capital facilities available. In terms of exporting we also avail of letters of credit, foreign exchange facilities and bank guarantees. Guarantees can be important when you enter a new region to provide comfort to the buyer on their deposit prior to the goods being dispatched. We obviously aim to protect ourselves in terms of exporting to other countries – we have facilities with our bank to manage letters of credit which is critically important when exporting.
What’s the key, in your experience, to managing the relationship with your bank?
We have a proven track record in exporting now and in this regard the bank trusts that we have enough experience in foreign markets to conduct our own due diligence. The key is to deliver what you say you’re going to deliver. Communicate regularly and maintain that open relationship with them.
It’s about transparency. No-one likes surprises, least not the banks. We invite them into the business regularly. It’s really important that they understand our business. In recent times, they’ve been proactive and I feel that’s important too.
What skills did you find worthwhile when shaping your approach to exporting?
I’m a Chartered Accountant, and that provides a background in identifying and managing risks; implementing necessary structures and processes to facilitate growth, especially when developing foreign entities. The accountancy training and disciplines have proved invaluable in the last six or seven years in the midst of the recession, where maintaining a firm eye on your cash position becomes a critical priority. There’s a strong financial ethos within the company. However, you need a broad skillset to succeed and fortunately we have a strong team with a diverse skillset which has underpinned our success over recent years.