Overcoming the Top 5 Accounting Challenges of International Expansion

In this blog, KES would like to share with you a recent article posted to the Oracle NetSuite Blog, ‘Overcoming the Top 5 Accounting Challenges of International Expansion’. This article was written by Scott Beaver, Sr. Product Marketing Manager at Oracle NetSuite, and was originally posted to the Oracle NetSuite Blog on Thursday, July 22, 2021.

Building a successful company is no small achievement, so once they’re established locally, entrepreneurs often believe they’re ready to take on the world. After all, international expansion is the next logical step for a growing business. Although entering new markets can be a great opportunity, it can also be disastrous. Succeeding in a foreign country is just a difficult as launching a new business, if not more so. Business leaders need to understand the challenges of managing a global business and how to overcome them.

Preparing to Manage an International Business

International expansion is fraught with risk and can seriously strain company resources, not just financially but also in terms of human capital. To make it work, companies must be able to adapt to different business rules and cultural expectations. This includes:

Complex business structures. International expansion is a major undertaking and can take months to complete, and while there are simpler approaches, like opening a branch office instead, the subsidiary structure has its advantages, including protecting the parent company from liability. However, it also makes the accounting process more complicated. As a separate business, the subsidiary needs to follow local accounting rules and generate its own financial statements. And those results must roll up to the parent company, where different accounting standards may apply.

Consolidating data from subsidiaries in different countries following different rules increases the time and effort required to close the books and is a common source of reporting errors. An accounting solution specifically designed for companies with multiple legal entities simplifies the process, letting you post every transaction to multiple accounting books at once, ensuring the correct standards are applied at the local and headquarters level.

Language barriers. One of the first challenges you face when expanding internationally is deciding how you’re going to communicate with customers, staff and other stakeholders. People generally prefer to buy from companies that speak their language, so an English-only marketing strategy will limit growth. Employees are also more comfortable using their native language and tend to be more productive as well. This isn’t just about communications, however. It also applies to the tools and technology people use to do their jobs. So in addition to ensuring that internal documents are translated correctly, accounting and other business systems should support multiple languages.

Exchange rate volatility. When entering a new market, companies are expected to conduct business in the national currency. This isn’t just a convenience for local trading partners, however. It’s a legal requirement in most countries. But dealing with multiple currencies adds uncertainty, risk and complexity to financial processes. Exchange rates are constantly rising or falling throughout the day. This means the value of international sales fluctuates relative to a company’s base currency.

Understanding the impact of these changes on earnings is critical. Monthly financial statements only capture the results. To mitigate the effects of exchange rate volatility, managers need more frequent updates. But converting financial data into a common currency for analysis is often a time-consuming, manual process. Automating currency conversion using the latest exchange rates produces more timely insights, leading to better results.

Tax codes. Companies expanding internationally will need to keep up with changing tax policies at home and abroad. With many provisions of the U.S.’s 2017 Tax Cuts and Jobs Act set to expire and a presidential administration with different priorities, corporate tax rates are expected to rise. And changing economic conditions are likely to continue to put pressure on countries to raise taxes as governments looks for ways to increase revenue.

Dealing with indirect taxation, including VAT and sales and use taxes, can be particularly challenging when entering a new market. Tax rules and rates vary from country to country and at the local level as well in many cases. Knowing when to collect these taxes, what rate(s) apply can be confusing and becomes more difficult as you sell into more markets. Keeping up with these details and ensuring the information is up to date is often done with spreadsheets. Automating tax collection is an easier and likely more accurate approach.

Compliance. Navigating the regulatory environment in a foreign country can feel like trying to untangle the Gordian Knot. The roles of different government agencies often overlap, making it difficult to know who is responsible for what. Add to this the myriad legal statutes, banking regulations and other rules that specify how that business must operate and you begin to realize how big an undertaking international expansion really is.

Compliance may be the biggest challenge companies face when entering a new market. It’s easy to misinterpret regulations and that can lead to costly fines or other penalties. In helps to have local expertise to ensure rules are being followed. Automating compliance by embedding those rules within the applications you use to run your business, however, is an even better option.

Global Business Management Solution

NetSuite helps multinational, multi-subsidiary companies tackle the unique challenge that come with managing a global business, giving them the flexibility to adapt to currency fluctuations, tax rules and regulatory requirements wherever the operate. NetSuite’s cloud platform allows business leaders at the local, regional and headquarter levels to track performance in real time and access the data they need generate fresh insights improve results.

With NetSuite, multi-entity companies can develop standard business processes and deploy them across the organization, ensuring consistency everywhere you operate. Eliminate time-consuming and error prone process by automating compliance with FASB, IFRS, SOX and other financial requirements. And give managers, department heads and other stakeholders the tools and information they need monitor performance and make informed decisions that improve results.

Join the webinar, Simplified Multinational, Multi-Entity Financial Consolidation, to learn more about NetSuite’s global business management solution.

 

Contact Kraft Enterprise Systems at to learn how our experienced NetSuite consulting team can help your organization take full advantage of NetSuite capabilities. Our goal is to partner with clients so they can optimize processes and manage their business more effectively.