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March 18, 2015
Growing your business from a domestic company to an international brand is an exciting and scary endeavor. On one hand, your homegrown business that you started from scratch is poised to explode on the international market where there will be countless new ways to profit and grow, but on the flip side there will be a number of unforeseen hurdles and a steep learning curve.
After logistics, one of the trickiest aspects of expanding internationally is managing your finances. A number of things can lead to higher costs and sometimes, just a tiny mistake can mean the loss of thousands of dollars. International banking and money transfers are a large part of doing business overseas and the fees associated with them are often overlooked as the cost of doing business, but they don’t have to be. There are a variety of things you can do to save money while growing your business overseas.
Doing business internationally leads to unexpected ups and downs in your cash flow based on exchange rate swings. If you have a slim profit margin, this is doubly important. Exchange rates can work with you or against you depending on your timing and it’s vital to remember they change daily. Timing your currency transfers whether hourly, daily, or weekly, to align with the best exchange rate can equal to big savings.
In addition to keeping an eye on the daily swings in the exchange rate, there are a number of things you can do to hedge against negative currency moves. You can use forward currency contracts to lock in a specific exchange rate or set up a currency option. Check out part two of this article to learn about the ins and outs of these options more fully.
You’ll find out that at times it will be better to accept payments in a foreign currency and other times it’s best to accept payment in USD. Just make sure you discuss and agree with your clients upfront about the type of currency you’ll be accepting.
The basics of international banking are very similar to domestic banking, but the fees associated with the services vary greatly. Take the time to fully explore your options to find out which institutions offer the best services at the lowest cost.
Even if you have a foreign bank account and credit card, at some point you’ll either need to send money abroad or want to take some of your profits back home. This is where you can really get whacked with international transfer fees from the large banks. Despite having an overseas bank account, it’s often best to use foreign exchange transfer services like Xoom or World First for your international money transfer. They offer better exchange rates than banks, usually by 3% or 4%, and the fess will be lower too. Many offer large international money transfers at no cost too.
Expanding your business overseas is going to take a lot of moxy, a touch of knowhow, and maybe even a bit of luck. If you are smart about it and plan correctly though, the positives will far outweigh the downsides.