Keep abreast of exchange rates
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General Interest
Buying a business abroad is a great way to make your dreams come true, but it’s important to plan thoroughly prior to your business purchase, and give yourself the best possible chances of success.
There’s always a temptation when starting a new business to buy more than you have to; you might want to buy a state-of-the-art printer or fill your restaurant’s walk-in freezer, promising yourself that you can pay it all off when the profits start rolling in. Try not to invest in more stock, raw materials and equipment than is absolutely necessary for the opening months of your business. In the long term, the peace of mind that comes with knowing you’ve still got money in the bank account is infinitely more important than feeling like you’re all stocked up and ready for anything on day one.
Are you going to move all of your finances abroad, or do you plan to travel back and forth from the UK to earn some supporting cash for a while? Maintaining your UK income stream may look like the most financially sensible option on paper, but try not to factor it into your decision to purchase. You may need to be available on-site in the first six to twelve months to give your business the best start possible. Any income from UK business interests that you may have could still be taxable in the UK as well as in your host nation, so if you plan to island hop, investigate your likely tax situation and make sure it’s still a profitable use of your time!
A lot of businesses abroad, particularly premises in popular holiday locations, are exposed to seasonal fluctuations in trade. These massive disparities in month-by-month income can make for a scary first year of trading if you’re not prepared. Follow your market cycles with interest, estimate supply and demand and plan accordingly; you may be able to use the natural ebb and flow of seasonal trade to your advantage.
- Clear the Language Hurdle:
If you plan to cater to an English-speaking holiday community or the ex-pat market, you may question the value of learning the local language. Even if your target market will all be fluent English speakers, you can remain reasonably confident that your suppliers, advisors and the taxman won’t be. Fluency in your host language means you can do deals with suppliers, improve your margins, get clarification on legal issues and keep those profits coming in.
Try to hire at least one bilingual member of staff who can communicate in both English and the local language. Having someone onside who can converse with locals and foreign parties can make the day-to-day running of your business much easier.
Language skills can help you ingratiate yourself with the locals, which makes great business sense. In seasonal markets, local trade can soften the blow that quieter months of the year will deal to your cash flow. Developing your local market is also a good way to protect yourself against the outside influences that could affect the peak holiday trade (exchange rate shifts, airport closures, poor press coverage etc.).
When you buy a business abroad, you’re entering an entirely new legal system, so it’s best to err on the side of caution. Ask as many questions as you can before you sign the contract, and take nothing for granted. In some countries, contract disputes can take years to resolve, so make sure you fully understand what you’re committing to. Appoint a solicitor in your host nation, explain your plans in depth to them and get some comprehensive legal advice.
Although every EU citizen is free to move, reside and engage in economic activity within the EU, it’s well worth registering as a resident of your new host nation. Just as anyone coming to work in the UK needs to apply for a National Insurance number, so too will you have to go through the appropriate registration channels. In Spain, the NIE, a foreign identity number, is necessary proof of identification for any large purchase such as a business, a house or a car. Another example is France, where although you are not legally required to hold a residence permit, it grants access to state services and aid, and is a very useful document to own.
- Get the best Exchange Rate:
One of the major fears holding people back from buying a business abroad is a lack of understanding about exchange rates: either you don’t know why you seem never to get anything like the rate quoted in the newspapers, or you’re worried by the risk of a currency fluctuation driving the business for sale out of your reach.
The price quoted in the papers is simply a mid-price; it’s the value between what a currency is being bought at and sold at. If you’re moving a large amount of money into another currency, it’s worth asking for quotes from specialist foreign exchange (forex) brokers. They may be able to offer you a rate that’s close to the newspaper’s mid-price.
If you need to sell your home or release equity to finance your new business and you’re worried about currency fluctuations, you might consider using a forward contract. With a forward contract, you arrange to buy a certain amount of currency at a certain price at a given point in time, perhaps nine or twelve months down the line. This option gives you time to get your finances in order, and while you will not benefit from any future improvements in the exchange rate, at least you know you can afford to go ahead with your dream!
You know what you want from your business purchase abroad, but do you know what this business is going to want from you? Many business owners become disillusioned with their ventures due to inflated expectations. If your business abroad purchase is all part of a sunny working-retirement plan, make sure you’re not buying into an 80-hour-a-week commitment. Equally, don’t expect a sleepy seaside town to provide you with a millionaire’s lifestyle! Be reasonable in your estimations. Talk to the existing owners, show your business plan to existing local business owners and business transfer agents, and find out whether your turnover expectations are within reason for the area.
Want to get a sense of what's out there? Feel free to browse our businesses for sale in Spain, search for other businesses for sale in Europe, or view businesses for sale worldwide.
Published: 06/03/2008 00:00 © DaltonsBusiness.com
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