One of the main objectives for most businesses is to expand and grow as much as they possibly can, setting their sights on world domination like some sort of Cartoon Network evil genius. Who can blame them?
An international audience means infinite brand exposure, a much wider reach and hundreds of thousands – maybe even millions – more customers to invest in your products or services. It’s an alluring vision that keeps many business owners motivated to keep pushing for development.
Sure, this ambitious scale isn’t for every entrepreneur and a small business might be all that you need to be happy, feel successful and make your money. However, if you are looking to spread your business across geographical borders, we just want to make you aware of a few stumbling blocks you meet along the way with regards to your finances…
Foreign currencies and exchange rates
With the benefits of an international business operation comes the perils of currency and exchange rates.
As you know, these exchanges fluctuate on an extremely regular basis according to the various economies. Sometimes, this will work in your favour, but other times, the current exchange might leave you out of pocket.
Invoicing with foreign currencies
The snags that shifting exchange rates present can be more easily managed when you deal with your incoming payments via invoice. You can simply adjust the total cost in accordance with the current exchange rate so you aren’t left short.
In fact, many online accounting systems have now made invoicing in a foreign currency a simple, automated process. However, you will need to remember to convert this into pounds sterling when producing accounts for HMRC or Companies House, and show the VAT in pounds sterling too.
Foreign currency transactions for an ecommerce business
If you sell products or services online via an ecommerce website, things aren’t quite so simple but you do still have a number of options:
Set up bank accounts in different currencies
Although this is a viable option, it’s not one we would recommend as opening up bank accounts in different currencies can become an expensive and messy management process. Plus, monthly charges and minimum deposits might prove problematic.
Play it safer with PayPal
PayPal accepts payments in multiple currencies via one secure platform, eliminating the need for multiple bank accounts. PayPal will also translate transactions into pounds sterling as you receive them to save you the hassle. However, all of this does incur a small charge.
Consider something like TransferWise
This service offers a free, multi-currency account that offers unique account details across the UK, Europe, UK and Australia. Again, it keeps everything safe in one place and enables you to accept payments in foreign currencies for free. Just be aware TransferWise will also charge a small upfront fee on the value of the transfer.
We understand that this can all seem pretty confusing, especially when foreign currency and exchange rates are involved, which is why we recommend working with a qualified accountant. Get in touch today to find out how we can help.
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About The Author
We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!