Insurance 25 September 2018

What business owners need to know before exporting for the first time

Whilst they may not realise it, many small businesses are offering goods or services that would translate well overseas

The government has placed international trade at the heart of its growth strategy and is seeking to raise exports as a proportion of GDP from 30 per cent to 35 per cent. However, the number of SMEs trading internationally has remained relatively low when compared to some of the UK’s international competitors.

So what more can be done to encourage small business owners to start exporting for the first time, and what strategy should they adopt once they have chosen to do so?

To start with, it is important that small firms really understand the benefits of international trade and what it may mean for their business. Typical benefits will include increasing revenue from trading with a wider customer-base and spreading risk across multiple countries to reduce dependency on the UK market.

However, the benefits for the business can go deeper than this. Unlike trading solely in a domestic environment, international trading can provide businesses with the incentive to evaluate their business model and engage in business improvement activities and innovation that ultimately strengthen their resilience and performance at home. 

Before trading internationally, there is also a need for SMEs to critically appraise their business and to assess whether it is suited to overseas trade. To ensure that international trade will be right for the business, SMEs should take time to understand what is involved in the process and what resources are necessary to make it a success. Some businesses may be unsure how to make this assessment, however, tapping into quality third-party advice will help companies appreciate what is required to deliver an effective export strategy. 

A useful resource for small business owners is the government’s website. This digital platform forms part of the government’s Export Strategy to connect businesses and support them to grow on the world stage. This not only includes a range of services and tools to help businesses increase their knowledge and capacity to export, but can also help with connections to overseas markets and customers. Building these connections is obviously a key ingredient if SMEs are going to be able to identify and take advantage of international opportunities.

Of course, one component that will be vital if SMEs are going to have the confidence to begin trading internationally is cash. This is the lifeblood of every business and being able to understand what cash resources are available and the cash flow implications for the business will help determine if a business is ready to export.

Carrying out three-way cash flow forecasting, which involves combining data from profit and loss accounts, balance sheets and cash flow reports to create detailed financial projections, can help businesses to anticipate the impact of exporting on their future cash position. By inputting data for a number of possible “what if” scenarios, organisations can avoid unforeseen additional costs which could have a negative impact on day-to-day business processes.

Another essential aspect for SMEs to bring into their international toolkit is the importance of conducting thorough market research. Just because a product or service has delivered strong sales in the UK does not mean that it will do the same in foreign markets, or that branding and positioning strategies will work in the same way. Differences in consumer preferences, cultural differences and language barriers should all be taken into account before deciding to enter a market for the first time. 

Similarly, as businesses will be dealing with a new regulatory environment in overseas territories, they will be exposed to a range of unfamiliar issues. For example, aspects such as intellectual property, foreign currency, insurance and taxation will all need to be approached differently to how they would in the home market. In this respect, it can really help SMEs to have the right support network in place to make the transition from domestic to international trading.

Advisers will help them prepare an international business plan in order to get ready to export in a new territory, ensuring proper consideration is given so that things run smoothly and that the business is compliant in all jurisdictions in which they plan to operate. 

Whilst they may not realise it, many small businesses are offering goods or services that would translate well overseas. Taking the necessary steps to understand the benefits and challenges of exporting can be hugely rewarding, and with the right support and a detailed strategic plan in place, this is a path that many SMEs could follow in order to take their business to the next level.

Nick Farmer is partner and international trading specialist at accountancy firm, Menzies LLP

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