Running any startup requires entrepreneurs to walk a financial tightrope before becoming profitable. International startups, though, face the added complexity of managing international transactions, foreign suppliers, distributors, and employees. This makes it even more difficult for them to become profitable and makes them even more vulnerable to cash flow interruptions than their domestic counterparts.
To succeed in reaching a stage where they can begin to grow in earnest, these businesses need to find ways to make every dollar count. That’s not just to become profitable, but also to protect their credit. Growing a business requires growth financing, but businesses often can’t access that financing until they’ve already proven themselves. To do that, they need to build a solid business credit profile, and develop ways to keep their finances under control, even in a highly competitive international environment.
Limit international transaction fees
When they’re just getting started, entrepreneurs often opt for the simplest and best known solutions when it comes to software, equipment, and payment services. For international businesses, this last issue can quickly become particularly expensive. Traditional banks, as well as popular online services that allow international payments, such as PayPal or Payoneer, seem like an obvious solution to an inexperienced small business owner. However, transaction and currency exchange fees for these can add up quickly, potentially costing thousands of dollars per year, even for relatively small businesses.
These services charge fees in order to offset any loss of value incurred by trading currencies in the rapidly shifting market, as well as to cover the labour cost of doing the transactions. While this makes sense in theory, it’s also entirely unnecessary in a modern business context. Specialised foreign exchange services like Fifo Capital partner HiFX, allow businesses to make and receive international payments with minimal or no fees. What’s more, larger transactions incur smaller or no fees, so costs don’t scale with revenue.
This works because these foreign exchange services agree to make the transaction at the current market rate. They, however, track exchange rates in real time, and look to make exchanges at much more opportune moments, when the value of the currency they’re currently holding spikes momentarily. They then pay out the previously agreed amount, and keep the difference as revenue.
Avoid unnecessary rules and red tape
Larger businesses become increasingly complex, requiring a growing amount of structure and bureaucracy in order to ensure the proper working of the organisation as a whole. While it’s important to keep this in mind for the future, it’s important to note that startups do not require this level of top-down control.
Keep administrative costs down
International businesses often require more administrative work than domestic businesses do. Shipping products and sourcing suppliers internationally, potentially paying foreign workers and businesses as well as local ones, and managing the taxes requires more oversight and careful documentation than a more locally oriented startup does. While it’s important to recognise this, business owners can’t afford to overcompensate by hiring an expensive administrative team to deal with the paperwork. Instead, entrepreneurs need to do their homework to determine exactly what they need, both in terms of outside experts and technological support.
Implement flexible working
While it’s not suitable for all industries, many businesses don’t actually need all their employees to be in the office every day. By allowing employees to work from home or to manage their own hours to an extent, businesses can operate out of smaller offices, since not everyone will be in the office at the same time. Carried further, businesses who choose to hire digital workers in other cities or countries can achieve an even more dramatic cost-saving effect.
Learn to manage cash flow interruptions with alternative finance
Minimising costs is a great way to ensure your business’ competitiveness and to become profitable more quickly, but it often can’t protect your business from cash flow interruptions. Unexpected costs, or revenue interruptions resulting from late payments, can quickly damage your business’ otherwise carefully managed credit. Fortunately, your business doesn’t need to qualify for traditional financing in order to help manage these costs. Instead, entrepreneurs should make themselves familiar with alternative financing tools like invoice financing, supply chain finance, and unsecured business loans. These can provide the needed funds in less than a day, and provide the needed financial breathing room they need to deal with the issue.
All businesses can benefit from keeping their costs under control, but international startups have even more to gain by doing so than their domestic counterparts. Eliminating foreign exchange fees, keeping other costs down, and avoiding cash flow interruptions is not just beneficial in terms of building good credit, and working to qualify for growth capital. It also gives these businesses a competitive edge over other enterprises that aren’t as forward thinking, and sends a signal to potential investors that, where growth is concerned, they are the odds-on favourite.
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