Funding Growth And Sales Into New Markets

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Highlights

  • Ahead of Brexit, larger companies may want to establish a UK-registered company that can conduct its business in sterling and thus limit exposure to currency fluctuations
  • In the event of Britain leaving the customs union, companies that sell most of their products in the UK might even considering relocating there
  • Invoice finance can be a way of improving cash flow for those exporting, when initial payment cycles can be unpredictable as the business develops

As Irish exporters contemplate their future relationship with the UK, a range of experts offer their views on how to adapt to the changing market and identify opportunities for growth.

Irrespective of its relationship with the rest of the EU, the UK will remain a major export market for Irish companies. In 2015, 13.9% of goods exported from Ireland went to the UK, according to figures from the Central Statistics Office. In May 2017, 11% of businesses responding to the Small Firms Association’s (SFA) Summer Business Sentiment Survey identified market diversification as a priority.

There are many sources of information and assistance for Irish exporters, including the Irish Exporters Association, the Department for International Trade in the British embassy in Dublin, the British Irish Chamber of Commerce, InterTradeIreland, Irish International Business Network, Local Enterprise Offices and Enterprise Ireland.

Enterprise Ireland has a free planning tool for Irish exporters to the UK, the Brexit SME Scorecard, which is designed to help them assess their business readiness across business strategy, operations, sales and marketing, finance, innovation and people and management.

Allyson Stephen, senior market adviser at Enterprise Ireland, says trade media and shows, and in-market events can be strong resources for Irish companies looking to identify opportunities in the UK. “These will help companies be as prepared as possible by helping to identify potential customers, what customers’ pain points are, how to access these customers and who the competition is,” she says.

Cathal Cusack of MSI Global Alliance member firm Cusack Garvey recommends checking out some of the forums created on LinkedIn by organisations such as the London Irish Business Society and sectoral groups, some of which hold meetings in Dublin. “It would also be common for a small Irish company to target a region of the UK rather than the whole market for reasons of scale and logistics,” he says.

Flexible approach

There is no one-size-fits-all approach to entering the UK market. For example, a consumer products company will typically use a sales agent or distributor and, when it reaches a certain scale, employ a direct sales resource on the ground.

For larger companies with greater resources and experience, it might make more sense to establish a UK-registered company that can conduct its business in sterling and thus limit the exposure of the business to currency fluctuations, says Katie Daughen, head of Brexit research and support services at the British Irish Chamber of Commerce. This approach will also help ensure the company is better protected from any future restrictions to trade that might come about because of Brexit.

For some companies that sell most or all of their products in the UK, it might even make sense to move their operations across the Irish Sea to avoid future issues should the UK leave the customs union, says Arnold Dillon, Brexit campaign lead at Irish business body Ibec. If not, currency hedging will help to mitigate the impact of sterling volatility.

“It would be common for a small Irish company to target a region of the UK rather than the whole market for reasons of scale and logistics”
 
Cathal Cusack, co-founder, Cusack Garvey
 

Once the operations are significant enough to represent a permanent establishment for tax purposes, UK payroll taxes, VAT registrations and corporation tax returns all need to be considered, says Amanda-Jayne Comyn, a director in the tax department of Grant Thornton Ireland. “Transfer pricing on internal cross-selling goods and services between Ireland and UK would need to be considered.”

Conduct checks

It’s important to conduct thorough checks into any local partner, through formal due diligence of their credit history as well as seeking customer references, says Katharine Byrne, head of the BDO corporate finance team in Dublin and a member of the firm’s Brexit taskforce. The tax structure of the UK office should be considered in conjunction with the business strategy and commercial arrangements – the manner in which sales and contracting arrangements are set up can have tax implications in the foreign jurisdiction.

Irish businesses looking to minimise the impact of Brexit on the movement of goods and services between Ireland and the UK need to fully understand their supply chains, says Michael O’Flanagan, research officer at the Irish Small and Medium Enterprises Association (ISME). They should also ensure that their contracts are at least given the ‘once over’ by a lawyer who fully understands UK law, and would be advised to employ a local lawyer to cover all contract work, says Enterprise Ireland’s Stephen.

Many companies that relocate from Ireland rather than opening subsidiary or branch offices will have tax-equalisation arrangements that ensure staff are no worse off as a result of the move, explains Ian Young, international tax manager at accountancy body ICAEW. “Since the income tax rates are very similar in UK and Ireland this may be less relevant, although there is an additional rate in the UK of 45% broadly for taxable incomes over £150,000 [€166,000],” he says.

Invoice finance

Katharine Byrne refers to invoice finance as a way of improving cash flow that is particularly helpful for exporters, where initial payment cycles can be unpredictable as the business develops.

Invoice finance enables export companies to raise funds against unpaid invoices, creating an ongoing credit facility that can free up cash for investment in increased capacity or the purchase of materials at more favourable rates. It can also bridge the gap between outlay and payment – helpful in fluctuating market conditions, for funding growth and also for seasonal businesses.

The two main options are invoice discounting – which involves raising funds against unpaid invoices, in this case the company retains responsibility for collecting payment on these invoices, and factoring – where the business issues its invoices as normal and the factoring provider advances the majority (usually up to 90%) of the value of the invoices, collects the money owed and issues statements to clients.

 
 

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