GROWTH AND PROFITABILITYOptimizing the Finance Function for Small and Emerging Businesses phần 2 pot

■ Have all foreseeable risks been identified?

■ Are owners in touch with industry peers regarding changing rules and reg￾ulations?

■ Does the company have quick access to legal counsel that knows enough

about the industry to guide the enterprise through changing federal and lo￾cal regulations?

From a financial standpoint, strategies should be in place that take into account

unexpected regulatory barriers. Setting up adequate reserves and having the capa￾bility to quickly add the impact of new regulatory guidelines into budgets and fore￾casts may be the extent of a sound preventive finance strategy. If the organization

is publicly traded, however, a process may have to be in place to communicate

changes like these to the analyst community and shareholders in general, to man￾age expectations and optimize stock price. In this case the finance strategy may in￾volve retaining an investor relations professional or firm to spin unexpected news

and requirements to the public.

DOING BUSINESS IN FOREIGN COUNTRIES

The new economy (as dictated by the Internet boom) has created markets where

they previously did not exist while enhancing those that were once modest, at best.

Companies in the United States are finding that penetrating markets in North

America may not be enough to remain competitive with rival industry players.

Burgeoning economies in Latin America, Asia/Pacific, and Europe are driving a

changing world of market and cultural demographics. Before diving headlong into

a foreign market, it is prudent to weigh the risks of participating in cross-border

commerce with an upside potential.

The Internet

The chief driver of the new economy, undoubtedly, is the Internet. By providing

cheap, (relatively) low-maintenance access to the global community, companies of

all sizes and means can deliver products and services to once-inaccessible con￾sumers. What is the cost of this unbridled access? Is the company exposed to local

tax liabilities if it sells to customers in certain countries? What local disclosure

rules are the company subject to? Is the enterprise violating trade treaties or laws

by selling to the international community? Is the enterprise prepared to deal with

local authorities in the case of trade or import levies? Could U.S. or foreign au￾thorities force the enterprise to shut down its website or stop offering products and

services? Any or a combination of these scenarios could have an impact on the fi￾nancial health of the organization. What is the best way to strategize around such

bumps in the road?

DOING BUSINESS IN FOREIGN COUNTRIES 13

Brick-and-Mortar Operations

To better address the issues of doing business in foreign markets, it is best to ex￾amine the situation from a bricks-and-mortar perspective—that is, how would the

enterprise function if it had a physical presence in a certain country? Having a

physical presence in a country avails the company to advantages it would not have

if it had no physical presence. Avoiding exorbitant tariffs and duties not to mention

glacial import protocols are some of the major advantages of having a physical

presence in a foreign country in which a company wishes to do business.

With these advantages, however, come the responsibilities to comply with lo￾cal tax and reporting rules. Regardless of the company’s status (as a subsidiary, dis￾tributor, or manufacturing concern) in the foreign locale, foreign countries (with

few exceptions) consider the company’s mere presence grounds to assess it as a le￾gitimate tax-paying entity. This means allowing local authorities access to all

books, records, and information systems for statutory review. It also means com￾plying with all tax laws. Doing so could include definitions of revenue, expenses,

assets and liabilities that differ from those of the United States. Lack of compli￾ance with even the mildest of provisions could mean fines, penalties, or a cessa￾tion of business. Additionally, accounting treatments prescribed by foreign bodies,

whether by the countries themselves, by administrative bodies like the Interna￾tional Accounting Standards Committee, or by a combination of both, must be

understood and applied properly. In some cases, local GAAP rules and tax rules

are one and the same; in other cases they may be different. Examples of country￾specific reporting rules are:

■ Thin capitalization rules. Many countries require that certain threshold ra￾tios of debt to equity be maintained. For example, if Germany requires that

all companies doing business within its borders have no more than a 1.5 to

1 debt-to-equity ratio, any slippage below this ratio could deem a company

bankrupt and require it to be liquidated. Companies often must institute

drastic measures in circumstances like this, such as injecting cash into the

enterprise or converting debt to equity. The solution required to address such

a problem may be counter to the company’s overall strategy.

■ Hyperinflationary accounting rules. Certain countries with unstable

economies require the revaluation of balance sheet and/or profit and loss

(P&L) balances on a periodic basis to mitigate the impact of a weak local

currency. Economies that are hyperinflationary have specific rules for

revaluing balances in an effort to keep year-to-year comparisons of data ac￾curate. This may include creating and maintaining specifically defined ac￾counts on the general ledger. In Mexico, for example, this is called the B-10

calculation and is mandated for all companies that are traded on the public

exchange.

14 DOING BUSINESS IN TODAY’S ENVIRONMENT