Expanding Internationally With Bean Ninjas’ Tracey Newman
Estimated reading time: 9 minutes.
This article is a summary of a video interview conducted for the Ecommerce Back Office Facebook group.
This group is a community of ecommerce business owners, sellers, accountants, and anyone else involved or interested in selling online.
It is always open to new members, and there you’ll find interviews like this one, discussions, polls, and new connections across the world. Check it out here.
In this piece, Bean Ninjas Director and ecommerce accounting specialist, Tracey Newman will be sharing a range of wisdom and insights when it comes to international expansion for ecommerce businesses.
Read on to learn about:
- When do ecommerce businesses usually consider overseas expansion?
- Advice for businesses considering international expansion.
- Considerations around sales tax for international sellers.
- How to minimize merchant fees for the country you’re expanding to.
- Should sellers opt for a single Shopify store, or set up a new store for each country they operate in?
- When is a good time to consider third party logistics (3PL)?
- How do you track accounting for clients expanding internationally?
Let’s get started…
When do ecommerce businesses usually consider overseas expansion?
Most of our clients have been operating for at least 12 months prior to onboarding, as our preference is to work with seven-figure enterprises.
That said, ecommerce is a market in which a business can reach seven figures in a single month, with the right product.
There are typically three reasons why ecommerce brands consider international expansion:
- They’ve run out of ideas on how to promote their product within their home country.
- They’re looking to establish a brand name, or their product is so unique that moving into other markets is the only way to prevent other brands from copying their products.
- The type of their product they’re selling doesn’t lend itself easily to scalability.
Previously, business owners would come to us saying, “we’re about to expand to the USA, can you help us?”
Nowadays—particularly after COVID and global lockdowns—we are finding opportunities for more reflection and advisory services.
Sometimes what a client thinks they want isn’t what is best for them right now.
What quick advice do you have for a business considering international expansion?
First and foremost, let’s talk about structure.
My advice to any business thinking of going overseas is don’t over-structure and don’t feel that you have to structure straightaway.
That’s probably my number one tip.
You have no idea how successful your overseas venture will be. And there are a lot of costs and complexities that can be avoided early by expanding within your existing entity or tax residency.
It’s entirely acceptable to continue with your existing structures while generating new income from overseas. Oftentimes, it’s even beneficial and safer.
Creating a new structure or entity overseas means becoming subject to new laws, which may present some risks.
A product that is perfectly acceptable to sell in your own country could lead to lawsuits when sold under an overseas structure.
Lastly, you’ll need to speak with a tax agent in the country you’re hoping to expand into.
- Are there requirements for paying income tax in that country that will affect your business?
- Will the products or quantities you’re selling affect how your enterprise will be considered in that country, from a legal perspective?
Add this to the financial considerations, and it becomes clear that sometimes trading with your existing structure may prove more beneficial than creating a new one.
What about sales tax? Do the considerations there differ from income tax?
It’s good that you asked, as the rules are not the same for both.
In the United States, for example, income tax depends more on how much you’re selling and the ties associated with your structure and the US. But the overarching principle for most, if not all countries is who owns the structure and where they live.
Sales tax is a completely different situation. And it can differ depending on the country you’re selling to.
Let’s take Australia for example.
If an Australian company is selling more than $60,000 NZD a year to New Zealand residents, they must register for New Zealand Goods and Services Tax (GST). But in Australia, that threshold is $75,000 AUD.
If you’re a resident of England, selling to Australia, that threshold is zero. You must register for UK VAT after your very first dollar.
And over in the United States, they have a decentralized system. In other words, their sales tax regulations come from the state or the county.
There are over 80 different tax jurisdictions in the US. And it gets more complicated when you start looking at their nexus system that also applies.
So basically, you need to know the specific sales tax laws of whichever countries you’re selling in and out of. And the best way to do that is to consult with tax representatives from those places.
Learn more about ecommerce sales tax via the Ecommerce Accounting Hub.
How do you access the cheapest merchant fees available from the country you’re exporting to?
This is a question we see frequently.
If you’re an Australian-based company, for example, you can be subject to incremental costs when setting up in a second country.
Let’s focus on Shopify for now.
When you set up a Shopify file for a second country, two things happen that become incremental costs for you:
- You continue to be charged the Australian Shopify fees – even if you’re only selling in your second country.
- You get charged what is called “a currency conversion fee”.
So no matter what, you’re paying merchant fees for your home country and being charged upwards of 2% to be paid out in Australian dollars.
The question, therefore, becomes, “Is there any way around this?”
Unfortunately, the only way to avoid this is to set yourself up with a Shopify file in your second country.
And to do that, you must set up a structure in that company first. Then you have to apply for all the applicable tax ID numbers and get a bonafide bank account inside that country.
In summary, while it is possible to access the cheaper fees from countries you expand to, it is very, very difficult without pre-existing residential ties.
Should ecommerce sellers opt for a single Shopify store, or set up multiple stores for different countries? Which is more common?
The popular option is to have many Shopify files for many websites.
A contributing factor for this is the different subscription levels Shopify offers. A single Shopify file means a single pricing structure to present to all your customers. Having many allows for more personalized pricing depending on the country you’re selling to.
In addition, currency can be an affecting factor.
Shopify will detect the currency related to your IP address and take you to the relevant landing page for that version of Shopify. But it rounds the subscription costs, so not all subscriptions are even across different currencies.
The biggest disadvantage of running multiple Shopify files is that you now have a larger number of environments to host and layered costs.
So it’s not an easy decision to make, but it is one that’s worthy of much consideration as it can be painful to change later.
Let’s talk about shipping. When is a good time to consider third-party logistics?
As ecommerce businesses grow, there are two major things you’ll end up thinking about when it comes to shipping: Time and Psychology.
And they’re related.
Buyer psychology is a huge factor when it comes to choosing where to shop or what to purchase, especially with the mentality Amazon has been creating.
We are seeing a huge surge in instant gratification scenarios. If a customer can order something and it will arrive today or tomorrow instead of waiting two weeks for it to be shipped across borders, that is likely to influence their decision to buy it. Plus there are the import fees and other charges to consider.
That’s where 3PL comes into play.
Take Amazon FBA, for example: For freight that is stored in Amazon warehouses, the website will display a “Prime” badge which tells users they can get the product ASAP – as soon as today in some places.
Of course, you’re sacrificing a large sum of your profit margin by paying for Amazon to store and ship all your products. But you’re also vastly improving the user experience for your customers.
What considerations should be made around logistics when expanding internationally?
It depends on the product you’re selling.
If you’re bringing products in from China (which most of our clients are), and you’re able to arrange a shipment from China to a third-party warehouse in the source country, that’s ideal.
But there are so many affecting factors that it’s impossible to have a one-size-fits-all solution.
If you’re selling pens, for example, a single shipping container might mean a million units. Whereas if you’re selling furniture, it could be closer to 50.
On the one hand, a million units seems a better investment for the same price. On the other, you run a higher risk because there is more stock to be lost should anything go wrong.
If there is one piece of advice I can offer for all ecommerce businesses it’s this: be prepared for variables.
When you’re storing goods overseas, you’re going to need a place to receive them, people to unload them, and a unit to keep the product in. Not to mention the shipping side of things.
This might lead to investing in third-party logistics, which of course comes at a cost. 3PL can be quite a big investment when it’s your first foray into a new country.
You have to consider all the new costs and how they affect your profit margins.
So, do your research, learn the costs, and expect things to work differently than they do when selling in your home country.
How do you track accounting for clients expanding internationally? Can it be done by country?
This all depends once again on structure – whether they’re still trading from a single structure, or if they’ve added one or more additional structures.
If it’s just the one structure, we at Bean Ninjas only work with Xero.
We use something called tracking categories to focus on country-specific tagged items. Lots of businesses have expenditure that relates to every country, such as accountancy fees.
By partnering with A2X, we can throw those tracking attributes into Xero, which makes our job a lot easier.
A2X is also really helpful for multi-currency situations. A2X will push that deposit into Xero and configure it to the currency you prefer. A lot of that heavy lifting is done for you.
My other advice for ecommerce owners is to shop around for a specialist to handle your international accounting.
There are so many complexities in accounting, especially around unrealized foreign gains and losses, raising invoices, and using intermediary products like Airwallex and Wise.
Find someone that knows what they’re doing and can explain it to you in layman terms.
You can find out more about Bean Ninjas here, or click here to browse our ecommerce accountant directory.
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