UK: Enterprise Newsletter - For Entrepreneurs, Growth Companies And Their Advisers - Winter 2012

GOING GLOBAL - TWO PERSPECTIVES ON HOW TO TAKE YOUR BUSINESS BEYOND THE EUROZONE

By Steve Gilroy Vistage International (UK) Ltd and Emma Jones founder of Enterprise Nation

Steve Gilroy explores potential opportunities in the BRICS.

The current uncertainty in the eurozone, combined with lack of bank lending and low consumer confidence in our home market, is challenging many UK businesses. Over 50% of UK exports currently go to European countries, so if the eurozone is in crisis, our ability to continue exporting to these countries is at risk. And yet while most of UK business is focused on a Europe in crisis, there are some world markets that are still growing healthily, with significant demand for new products and services.

Missed opportunities

The BRICS (Brazil, Russia, India, China and South Africa) markets are predicted to grow by an average 6.3% between 2010-2015 (source: CBI). So why isn't UK business more focused on these growth markets? Some believe that UK entrepreneurs have settled for the easiest option – selling to their home market or their closest neighbours rather than exporting. Many would argue that this is just common sense. However, it means that export opportunities in growth markets are being left for those who are bold enough to take the risk.

The challenges we now face are forcing us to look at our businesses and come up with new ways of selling and delivering. We have to look at these new markets urgently.

Who dares wins

Natural demographic growth in the BRICS countries provides a range of opportunities, with some very obvious 'hotspots'.

• Growing household wealth and rising living standards are generating a surge in demand for financial services.
• China is already the largest automotive market in the world, but opportunities also span Asia and the whole of Latin America. Makers of UK car components could become a part of the global supply chain.
• Asians are passionate about education and already finance private provision in all age groups. UK education and training providers can tap into this long-term annuity opportunity by establishing links and partnerships.
• Although many BRICS countries have import tariffs in place, there are opportunities and support for UK businesses looking to establish a local presence and manufacture locally under licence. Many local players also have significant cash sums available for investment in foreign firms and partnerships.

Next steps

The opportunities are there for those with the courage to explore and invest. Now is the time to step outside the comfort zone of our home markets and to go global.

Emma Jones shares her insights into how business owners can capitalise on opportunities to go global.

Research carried out this year points to the creation of record numbers of new businesses and significant optimism among small business owners. This confidence is being converted into international trade as young startup businesses embrace social media and global sales platforms to sell products and services around the world.

In a recent publication, Go Global – how to take your business to the world, 20 businesses started by young business owners were profiled. A notable 75% of them were going global in their first 12 months of trading. A sizeable opportunity is opening up with growth in markets beyond the eurozone, as increasing numbers of people buy online and demand British-made goods and services.

Making the most of this opportunity

Know your product/service

This may sound like a basic starting point, but it is important to focus on your niche. Clearly define the look/ feel and cost of your product/service so that you know exactly how to position it in new markets and where to promote it.

Look beyond the eurozone

Research and visit emerging markets to assess the potential for your business. According to HSBC Trade Forecast, published in late 2011, world trade is predicted to grow by 73% in the next 15 years, with forecasts showing that Egypt, India, Vietnam, Indonesia, China and Brazil will be the international powerhouses driving growth.

These countries may not seem like natural trading partners for the UK, with the EU remaining the largest recipient of UK exports for reasons of culture and distance. Nevertheless, political figures recognise the need for British companies to look further afield with the Prime Minister, David Cameron, urging businesses to seek out opportunities "in huge modern cities from Bogota to Istanbul where people are hungry for the skills and services Britain is best at".

Make the most of powerful platforms

Upload products and services to international trading platforms and/or source the talent you need to serve new markets.

• Elance.com is a good place to promote yourself as a business service provider or to identify experts and professionals.
• Alibaba.com is the platform of choice to source from and sell to Asia.
• Etsy.com is enabling thousands of artisan entrepreneurs to make fine products at home and sell them across borders.

Seek help

There has never been so much support available to help companies sell globally. Seek advice from peers with experience of international trade, from government agency UK Trade & Investment (UKTI), as well as industry experts and service providers. For example, Smith & Williamson has a global network of accountants and business advisers, Nexia International, with offices in over 100 countries.

The world awaits

There has never been a better time to go global – to embrace technology that helps source, produce, partner, promote and take payment for products, while securing support from peers and experts willing to help. So, with nothing to hold you back, go global and take your business to the world!

EMERGING MARKETS STILL LEADING THE WAY?

By Michael Quach, Group investment strategist

Michael Quach considers whether the pace of growth in some of the world's largest emerging economies will continue.

Emerging economies, most notably the BRICS countries, have grown in importance owing to a faster rate of growth and increasing size relative to the global economy over the past decade. They are likely to continue outperforming given the potential for technological catch-up, lower labour costs and continued slow growth in the advanced economies as a result of the lingering financial crisis.

Emerging economies are set to account for around half of the global economy by 2030, according to the World Bank. In the short term however, they face a pullback in the pace of economic expansion given global uncertainties and slower trade. But this is unlikely to impact on future prospects for an increasingly multi-polar world economy.

Increased demand

The number of people classed as middle income is likely to increase rapidly as developing economies begin to prosper. In turn, this will lead to increased demand for consumer durables and natural resources. For example, demand for energy and water could lead to opportunities for environmentally friendly technologies. Cross-border trade in goods and services, such as health, finance and education, is also expected to expand dramatically.

Differing growth rates

The pace of growth within the emerging world is likely to vary from one economy to another depending on, among other factors, the stage of their economic development, the geopolitical risk environment, access to natural resources, demographics and good fortune. Certain countries will expand more rapidly, primarily on the back of a shift from agricultural to industrial-led economies and greater technological progress.

Others will expand at a slower pace or perhaps not at all. In such cases the easiest growth trajectory has already taken place and these countries face the challenge of transitioning towards a more service-related economy and the 'middle-income trap', i.e. the need to increase productivity through innovation. The last is likely to require major structural reforms of the economy to incentivise the private sector. Policymakers and investors in these countries may also need to manage an increasingly volatile socio-political climate and changing demographics.

Uncertain future?

So, while the secular story for the emerging world remains unchanged the recent financial crisis in the major advanced economies provides a major short-term headwind. The emerging world is not one homogenous class and given the multiple risks, it would be unwise to simply extrapolate past performance to gauge future success.

However, a more stable outlook for the global economy, combined with certain structural reforms, could result in the rapid expansion of the middle classes and provide future opportunities that are likely to include increased demand in areas such as consumer durables, natural resources and technology.

OFFSHORE OPTIONS FOR INTERNATIONAL TRADE - SELECTING THE RIGHT BUSINESS MODEL

By Guy Rigby, Head of Entrepreneurs

Guy Rigby considers the different offshore business models available to companies looking to expand overseas.

If you've decided to set up overseas, there are a number of offshore business models to choose from. The one that's right for your business will depend on your strategic goals, your reasons for entering the overseas market, the proposed location and the types of activities you intend to carry out. Some of the options available are summarised below.

Offshore freelancing or employment

Sending work to low-cost freelance staff can be beneficial. But so too can allowing existing staff to work from wherever they want in the world. Businesses with diverse workforces may find that staff who they already know and trust want to return to their 'home country'. This can create opportunities for international expansion.

Offshore outsourcing

This is when an external supplier is contracted to carry out a project and is responsible for its delivery. The outsourcing of IT development and support services to companies in India and other low-cost jurisdictions is typical of this model.

These arrangements can work well, but are not without their problems.

Using a third-party supplier can mean less buy-in, less flexibility and less control over important issues like timing and quality. There can also be concerns about the security of valuable intellectual property (IP). When outsourcing projects, you still need to invest in training, communication and, in many cases, travel.

An alternative to offshore outsourcing is onshore outsourcing, where you hire a domestically based company with a global team that can pass on its own cost savings through competitive pricing. IP, control and training issues may still apply, but communications may be easier to manage.

Joint venture

Under this model, your business enters into a joint venture (JV) with an established local company in the offshore location, allowing you to share ownership and take advantage of their local knowledge and experience. By choosing your JV partner wisely, you reduce the risks of working in an unfamiliar territory and can tap into your new partner's existing supply or sales channels.

Build–operate–transfer

Similar to the JV model, a build–operate–transfer relationship is typically where an offshore supplier operates a dedicated centre for your business. Once it's established and certain conditions have been met, you can exercise the option to take over ownership and run it yourself.

Offshore captive

Many companies looking to cut costs through offshore operations set up their own operations, known as 'captives'. Setting up a branch or subsidiary facility on your own can require a significant investment of time and money. You'll need to consider your preferred structure and then meet with local advisers, acquire and equip your premises, build your infrastructure, and interview, recruit and train your staff.

You'll need expert tax advice and guidance on other important issues, such as local laws and regulations.

Assisted in-house

With the assisted in-house option, you pay a service provider to help you set up operations (including premises, infrastructure, IT, legal compliance, incorporation, HR and working with local authorities) in suitable offshore locations. This scalable and quick solution is often suitable for smaller, growing businesses.

Acquisition or merger

Buying an existing company may be the preferred way for more established businesses to get a foothold in an overseas territory. In this case, you can acquire a readymade infrastructure, with premises, equipment and staff, along with existing revenues and profits.

This is an edited extract from Guy Rigby's critically acclaimed book, From Vision to Exit – The Entrepreneur's Guide to Building and Selling a Business, which is available on Amazon and in all good bookshops now.

EAST? WEST? IS CHINA STILL BEST? - EMBRACING THE GROWING CHINESE MARKET

By Henry Tan, Nexia TS and Jean Dong, China Factor

Foreign companies investing in China, particularly the western provinces, may still be able to benefit from competitive tax rates despite recent changes to tax laws, says Henry Tan of Nexia TS.

Tax incentives for most foreign businesses have all but disappeared following the introduction of new enterprise income tax (EIT) laws in 2008. All businesses in China now pay EIT at a rate of 25%, with the exception of high-tech businesses or research and development centres eligible for reduced tax rates.

Most foreign companies rely on the size of the local market, as well as inexpensive labour and operation costs, to achieve their desired rates of return. However, the central Government's focus on developing China's western regions could see reduced tax rates play a part in improving investment returns for foreign businesses once again.

Foreign investment in western regions

An EIT tax rate of just 15% will be payable until the year 2020 where a business has been registered as an approved wholly foreign-owned enterprise or JV in one of China's western provinces and a capital investment of at least US$150,000 has been made. This tax rate only applies if 70% of annual revenues are derived from the company's primary business in the western province. Many local governments provide additional tax benefits, dramatically improving the return on investment for a successful business.

Industries that qualify for the 15% tax rate tend to be focused on agriculture, forestry, environmental services (especially water preservation and irrigation), high-tech, or high-end manufacturing, as well as infrastructure. Infrastructure-related operating costs are generally lower in the western provinces, compared to the eastern cities traditionally favoured for foreign investment.

Industries based on supporting tourism, such as construction and operation of tourist facilities, are also encouraged in many provinces, as is passenger transport.

Choosing your business structure

Foreign companies wishing to make direct investments in China have several options available to them, ranging from having a simple presence through a representative office, to establishing a wholly foreign-owned enterprise, to forming a JV with a Chinese partner company.

Each option has its own unique advantages and disadvantages, and each option has its own set of rules relating to set up. For example, completing the registration process to set up in a wholly foreign-owned enterprise usually takes about three to four months. The application process is as follows.

Nexia TS is an established mid-tier accounting firm in which Smith & Williamson has a significant ownership interest. The firm has offices in Singapore and Shanghai and is a fellow member of Nexia International.

Despite a recent slowdown, China's unprecedented economic growth makes it hard for exporters to resist, says Jean Dong of China Factor

Foreign direct investment in China has really gained momentum in the last ten years and is currently topping US$120bn per annum, with UK investment representing about 1% of the total.

China's current gross domestic product growth is just over 8%, the slowest pace since the beginning of the global financial crisis. Yet, despite the sluggish global economy, renewed uncertainty in Europe, and continued downward pressure locally, China's economy is expected to maintain comparatively rapid development and there is little doubt that China's economy and consumer markets will continue to grow.

Investment in China

The central Government is encouraging foreign investment in the country, while also promoting Chinese investment overseas. The opportunities for entrepreneurs are almost limitless. Investment in China certainly makes fiscal sense and the current tax incentives mean that investment in the country's western regions is becoming more attractive.

Long-term investment in China doesn't just make financial sense, it may become a necessity – especially for small and medium-sized enterprises (SMEs) with goods and services connected to those Fortune 500 companies embracing the growing Chinese market.

Get the China Factor

British businesses looking to capitalise on the opportunities available in China need to be mindful of some of the key cultural differences to be successful.

A rapidly growing middle class in China with a taste for top western brands represents a huge market for exporters. The challenge is dealing with the fundamental differences in language, custom and culture. Here are some tips for businesses keen to overcome these differences and make their mark in China.

Define your goal – know what you want from China, whether it's selling your products or services, sourcing new suppliers or even finding a strategic investor. Set a realistic timeframe and budget.

Do your homework – specific regions act as hubs for specific industries, so don't just assume you need to go to Shanghai or Beijing. Talk to an expert with solid local connections and experience in your industry to determine the key macro/micro trends and latest policies. Next, find out which companies you should be talking to. How big are they? What are their objectives? What can you do for them? Find the key decision-maker in the company and don't waste time talking to a junior executive with no authority to commit the company, which is a particular danger in government-owned enterprises.

Go there – spend some time in China to explore potential opportunities. Note that the Chinese often don't want to book meetings more than a week in advance. While this can make scheduling difficult, on the other hand, it means you can be opportunistic and make the most of introductions when you are over there, e.g. have quick second meetings or meet contacts of contacts.

Role of Government – it is virtually impossible to operate in China without some level of support from the Government. Find out precisely what government permissions are required and when. Consider all the relevant layers of government, i.e. national, provincial and municipal and think of each of them as independent stakeholders. Understand their objectives and present your plans in a way that is relevant and helpful.

Make a little effort – nobody will expect you to arrive in China speaking fluent Mandarin, but a little effort can go a long way. The Chinese take personal relationships much more seriously than corporate ones. Have business cards printed with your name and details in Chinese on one side. Make sure you give and receive business cards using both hands and a suitable level of respect. Learn a few basic words and phrases. If you are meeting a potential partner, take them a gift of something they cannot get in China. Don't take them clocks, umbrellas or shoes since all of these have negative connotations in Chinese culture.

Negotiating – the Chinese like to bargain. When shopping in a street market, the standard tactic is to ask how much something costs, offer half that amount and, if not immediately accepted, walk off in disgust. The vendor will then call out offering to do a deal and a bargain will be struck somewhere in the middle. In a less crude form, this bargaining psychology also enters negotiations at a corporate level.

Reaching agreement – the Chinese use the word 'yes' in a slightly different way to westerners. Think of a Chinese 'yes' as the equivalent to 'Okay, I am interested in finding out more about this'. Define and agree the key elements of any deal verbally and on a single sheet of paper before getting into detailed legal agreements. Once the key commercial terms are established, get some advice from a law firm with experience in China. Note that the Chinese typically execute a contract with their company stamp. They attach little significance to personal signatures on the basis that companies are permanent fixtures but people may leave.

China Factor supports companies looking to enter the Chinese market.

UK EXPORT FINANCE - GOVERNMENT SUPPORT FOR EXPORT CONTRACTS

By Patrick Crawford of UK Export Finance

Patrick Crawford of UK Export Finance explains how the organisation is expanding the range of support it provides to exporters.

Exporting is good for business growth and the wider economy. But the reduced availability of trade credit insurance and trade finance from banks has resulted in UK Export Finance (UKEF) stepping into the breach and increasing the support it provides to exporters.

What we can offer

UKEF was previously focused on supporting large capital goods exports and related services with insurance and loan guarantees. However, since 2011 it has widened its role to support export contracts of all sizes and in all sectors. Its new range of products include the following.

• Revamped insurance policy – providing exporters with cover against the risk of, for example, specified political or buyer-related events preventing payment, encumbering performance or leading to the termination of a contract.
• Bond Support Scheme – offering a partial guarantee to the bank on the exporter's behalf (of up to 80% of the value on cash-related bonds), freeing up funds to carry out the export contract.
• Export Working Capital Scheme – helping exporters gain access to working capital finance (both pre and postshipment). It offers a partial guarantee to the bank on the exporter's behalf (of up to 80% of the value, in some cases).
• Foreign Exchange Credit Support Scheme – helping UK exporters gain access to forward foreign exchange hedging facilities for export contracts that are being guaranteed under the Working Capital Scheme.

Who can help

Smith & Williamson and other service providers, as well as trade and representative bodies, are helping to make exporters aware of these new products.

To make this support more accessible to SMEs, UKEF is appointing 12 export finance advisers to work alongside UKTI in the English regions and the equivalent bodies in Northern Ireland, Scotland and Wales to help businesses navigate the array of options for insuring or financing their export contracts. Eleven advisers have already been appointed covering Northern Ireland, Scotland, North-East England, Yorkshire and the Humber, North-West England, West Midlands, East Midlands, East of England, London, South-East England and South-West England.

Most of the needs of exporters should continue to be met by private sector providers but, if and when there are gaps in the commercial support available, UKEF may be able to step in and help.

FROM JOB SEEKERS TO JOB CREATORS

By Andrew Fiddaman, Youth Business International

When it comes to creating enough jobs, particularly for young people, it's not just the UK that's facing huge challenges – it's a problem plaguing countries around the world.

SMEs generally create the majority of jobs, but starting a new business is rarely straightforward. And, if it's hard enough for an entrepreneur to start up a business and build it to a level where they can actually employ people, then for a young person with not much experience and even fewer contacts, it's an extremely tall order.

Yet helping young people to start their own businesses not only tackles rising youth unemployment, but it also helps to contribute to economic development by creating additional jobs and introducing innovative new products and services into local communities. And that's what Youth Business International (YBI) strives to achieve.

Founded by The Prince of Wales in 2000, YBI is a global network of independent initiatives operating in over 30 countries. The organisation helps young people who have a business idea but no means to get their business started.

In 2011, YBI helped 7,700 entrepreneurs to start their own businesses using an integrated package of support including access to finance, volunteer mentors and training. It is estimated that these entrepreneurs will directly create over 25,000 new jobs over the next three years.

ACCESSING THE GLOBAL VILLAGE - HOW UKTI CAN HELP YOU GET TO GRIPS WITH OVERSEAS MARKETS

With falling eurozone exports and the UK trade deficit at a 15-year high, now might be the time to go in search of new growth markets. But how do you start and where do you go for help?

With 2,400 staff and a presence in 96 countries, UKTI is the government department that provides guidance to businesses operating on the international stage or thinking about exporting for the first time. Its global network operates through embassies, consulates and high commissions. Here are some of the ways that UKTI can help your business grow.

Local international trade advice – UKTI has international trade teams in more than 40 offices around the country and sector specialists in every UK region providing support tailored to individual industries. They can advise on issues including financial subsidies, export documentation, contacts in overseas markets, overseas visits, e-commerce, export training, developing and implementing an international strategy and market research.

Passport to Export – This service assesses a company's readiness for international business and helps build international trade capacity. Over a 12-month period, companies receive up to 6 days of dedicated support from an international trade adviser, an in-depth capability assessment, face-to-face training from export professionals and assistance with developing an action plan. Passport can also help with market selection, market research and support for visits to potential markets.

Gateway to Global Growth – This 12-month programme of tailored strategic support aims to help experienced exporters grow their businesses overseas. Guidance and mentoring from export professionals is intended to help businesses maximise their opportunities, reduce risk and overcome barriers in new and challenging markets.

Export Marketing Research Scheme – UKTI can help with market research on the main aspects of any major export venture, including market selection, size and segmentation, regulations and legislation, customer needs and attitudes, distribution channels, trends and competitor activity, and strategy and performance. SMEs may be eligible for a grant of up to 50% of market research project costs.

Export Communications Review – These reviews help businesses maximise the effectiveness of their communications with overseas customers by looking at areas such as company websites, company literature, language capabilities, cultural awareness and preparation for trade shows.

Overseas Market Introduction Service – A flexible business tool using the expertise of UKTI's trade teams located in UK embassies, consulates and high commissions around the world. Teams can provide market knowledge, research, and political and commercial contacts, as well as help with launch events and seminars.

Trade fairs and exhibitions – UKTI's Tradeshow Access Programme provides eligible businesses with grant support to attend trade shows overseas.

Business opportunity alerts – A free service that provides more than 400 sales leads in over 100 markets every month, including public sector opportunities and multilateral aid agency tenders.

Aid-funded business – Multilateral agencies, such as the UN and World Bank, spend around US$60bn every year on everything from tents to telecommunications. UKTI can help businesses tap into procurement opportunities.

Overseas business risks – The Foreign and Commonwealth Office provides regular assessments of political and economic factors in key emerging markets. Their reports are aimed at helping UK businesses to identify and pursue new opportunities and manage risk.

B2B support network – Supporting investors who are setting up in the UK and UK companies doing business overseas by promoting closer working relationships between the Government and the private sector.

SINGAPORE CALLING

By Margaret Manning, Reading Room

My husband Simon and I first opened Reading Room in London in 1996. Four years later, we opened our first office in Australia where we achieved phenomenal growth.

It had always been our plan to take Reading Room global because we were aware of the potential for high growth in emerging markets and our research had shown that our portfolio of clients could help us achieve similar high growth to that which we had achieved in Australia. As an increasing number of our clients demanded international solutions, it made sense to establish a local presence in emerging markets.

Getting the lay of the land

I was first asked to go to Singapore to act as a mentor under the Singapore Government Media Development Authority (MDA) sponsored Visiting Mentor Programme. The programme and the MDA's valuable help, along with the inspirational individuals I met and the exciting opportunities presented, convinced me to commit to Singapore.

We made a number of trips to Singapore to get a feel for the place and to meet the contacts we had been introduced to through the MDA. The British Chamber of Commerce was invaluable in connecting us with organisations that could offer us guidance on starting up in Singapore. Locally, the MDA and the Economic Development Board were very helpful. It was also important to speak to the locals and we had a 'fixer' on the ground to support us with the logistics of setting up a trading entity and to help us deal with local laws and regulation.

Rapid success

Within our first year we had won large and prestigious accounts with organisations such as the Monetary Authority of Singapore, the Competition Commission Singapore and the Health Promotion Board. It's also been great to have our work recognised.

• The website we designed for the Competition Commission Singapore won an Outstanding Achievement award at the Interactive Media Awards.
• Our 'Are You Snoring?' website for Philips Healthcare won this year's MARKies for Best Web Design. It also won a silver award at the eHealthcare Leadership Awards, an Outstanding Achievement accolade at the Interactive Media Awards and was shortlisted at the Campaign Asia Digital Media Awards.

Marked growth

Over the past 12 months, our team in Singapore has grown to more than 30 staff requiring us to move to larger premises. Singapore is primed to act as an international 'hub' office to service clients in the Asia Pacific region. We plan to maximise our growth with the introduction of 12 micro businesses in new markets around the world, starting with offices in Shanghai, Bangkok and Hong Kong. These businesses will act as research centres for Reading Room to gain local knowledge for our global clients, rather than as profit centres. In this way, we envisage being able to give our clients the consultative insight and advice that they have come to expect from us at a very local and relevant level.

Final words of advice

Singapore is an amazingly vibrant location and has been very welcoming to our agency. Those looking to follow a similar path should consider taking a leap of faith and not be afraid of the risks.

It's undeniably tough, for example, I get far less sleep now because I wake up in Singapore to three hours of Australian emails. But in all seriousness, the rewards are worth it. Just be prepared to ask for help when you need it.

Q&A: MARKETINVOICE

By Anil Stocker, MarketInvoice

Alternative funding options MarketInvoice co-founder, Anil Stocker, explains how their groundbreaking platform can help companies finance their business growth, including overseas development.

What does your business do?

Our business is a totally new way for companies to draw down flexible working capital. We've used technology to create an online marketplace where SMEs can auction long-dated invoices to a global network of investors. This allows them to get cash upfront to help grow their business. Registered investors compete with each other to provide the most funding against the invoice at the lowest possible cost. Our innovation is a disruptor to traditional factoring and invoice discounting. Some commentators are calling us an eBay for invoices.

Has the reluctance of banks to lend helped your business model?

It's hard to say. It's inevitably a good time to launch an alternative finance business because of the current sentiment surrounding banks. Also, regulatory pressures mean that banks are moving away from traditional areas of business lending, like overdrafts and trade finance, leaving a gap in the market.

Having said this, our comparatively low interest rates, lack of hidden fees and the fact that we don't have the sort of long lock-in periods or punishing debentures that tend to come with a factoring arrangement makes us competitive regardless of what the banks are doing.

What makes your offering more attractive than a regular loan or other equity funding?

There's no silver bullet for SME finance – different businesses have different needs at different stages in their lifecycle, with no one type of finance being particularly 'better' or 'worse'.

However, we can usually offer more money than an SME might get through a traditional loan because we judge a business based on the invoice against which we are advancing funds. Our ability to loan comparatively large amounts – up to 90% of the face value of an invoice – means we have made advances of £200,000 and £300,000 to companies that would never normally receive such amounts from a bank. This is particularly good for companies looking to finance a project that may require significant funding upfront.

Also, when compared to a loan or equity funding, we're a short-term commitment. An advance from us is returned once the invoice pays, while a loan can take years to pay off, and giving away equity in your business is generally permanent, an advance from us is returned once the invoice pays.

What is the average length of time between a seller posting an invoice, receiving bids and securing their cash advance?

The seller usually receives the money within 24 hours of posting the invoice. The longest anyone has ever waited is 45 hours for a very complex transaction involving multiple currency conversions.

How do you assess risk to the investor?

We perform an extensive fraud check, verify invoices and upload both invoices and company accounts to the platform. Our investors make their own calculations based on their appetite for profit and risk. All of our investors are either institutions or investment professionals – hedge funds or asset managers – so they are highly experienced in weighing up and managing their exposure to risk. By repeatedly investing in the platform, they can spread their risk further by having an interest in a range of debtor/seller combinations.

Have any of your client companies used the MarketInvoice platform to help finance overseas growth?

As a growing number of banks withdraw from trade finance, more and more sellers are using us for overseas development. About 40% of the companies that have used MarketInvoice have used our advances to fund growth overseas, especially in the US, Middle East and South-East Asia (Hong Kong and Singapore).

How will your business be affected when the economy picks up?

It's not uncommon for blue-chip companies to require 90 or even 120-day payment terms from the companies that supply them. However, under these terms, small companies are likely to encounter cash flow problems. So we provide the perfect solution. Ultimately, our business is about facilitating growth and trade, which means that in a high-growth economy we'll do better not worse.

ASK THE RIGHT TAX QUESTIONS WHEN EXPANDING OVERSEAS

By Rajesh Sharma, Partner, International tax

Rajesh Sharma outlines some of the key tax questions that entrepreneurs should ask when going international.

An increasing number of businesses are expanding into new markets as they strive to meet their growth targets and access more cost-efficient resources. Before setting up overseas, it is important to consider the tax implications. There is no one-size-fits-all tax solution, so each case should be analysed on its own merits and the underlying business circumstances in order to avoid unfavourable tax consequences in the relevant jurisdiction.

Below are some of the key tax-related issues to consider when planning any overseas expansion.

Legal structure

• Have you identified the commercial drivers for your overseas expansion?
• Is your legal structure based on these commercial drivers?
• Have you considered the general tax implications of your chosen legal entity, e.g. access to losses, extraction of profits and general business taxation?

Overseas taxation

• Are you setting up a permanent establishment overseas?
• Have you identified all of the country, state and local taxes in your preferred location?
• Are you aware of the VAT and indirect taxes liabilities on cross-border transactions, e.g. even when selling goods or services from the UK, there may be UK and overseas VAT issues to consider?
• Are you familiar with the tax and social security requirements related to sending UK employees to work abroad?
• Have you considered any withholding taxes that might be payable in an overseas territory when repatriating profits to the UK?

UK taxation

• Have you considered whether your business will be taxed in the UK on overseas profits and if there is any double taxation relief available?
• Are you aware that dividends from overseas subsidiaries or profits from overseas branches can be exempt from further taxation in the UK?
• Have you considered whether transactions between the UK and overseas operations will be subject to transfer pricing rules in both countries?
• Have you assessed your transfer pricing obligations under the relevant transfer pricing regime?
• Have you planned for a tax-efficient exit or disposal of assets of the overseas business?

At Smith & Williamson, we work with our Nexia International colleagues around the world to provide a full range of accountancy, tax and business services to help you expand your business overseas.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.