BDO: 15 areas to consider when expanding overseas

20 April 2015 Consultancy.uk

While the economy looks to be stabilising, many professional services firms are looking for opportunities to expand their business overseas. Any firm hoping to successfully expand, should, according to BDO, consider 15 key areas before committing to an overseas expansion strategy.

With experts saying the world is moving back to financial stability, many firms are reviewing their business priorities and, for many, this means seeking to exploit the opportunities available in thriving overseas markets. For many UK professional services firms, international expansion is a key strategic priority. 

BDO - International expansion for professional services firms

To successfully expand abroad, a great deal of thought needs to go into understanding the key drivers and the underlying rationale before committing to such a strategy. In its recently released ‘International expansion for professional services firms’ report BDO explores the key areas that firms must consider before making the decision to expand overseas.

Consultancy.uk provides a brief summary of the 15 key areas as defined by BDO: 

Rationale | Structure | Funding | Culture| Profit sharing

Rationale
A business planning to expand overseas must have a clear idea of what it hopes to achieve to ensure stakeholders understand the strategic reason and what this can mean for them in the short and longer term. 

Structure!
Once the decision is made to establish a presence overseas, the firm needs to consider which structure of entity to use, with each structure coming with a variety of consequences, including employee/partner status, taxation and public filing requirements. One option is to merge or acquire an existing firm. 

Funding
Any business planning to expand should have the ability to fund the expansion. An initial capital to establish the operations will be needed, as well as working capital once the business starts to grow. 

Culture
Businesses should be aware of country cultural differences as well as of specific cultures within teams overseas. Expanding via a merger or acquisition will result in combining established cultures. 

Cross border profit sharing
For professional service firms structured as a partnership, a clear of strategy concerning cross border profit sharing is essential in terms of communication with the partners so that expectations are managed for the longer term benefit of the business and the partners personally. 

Reward | Permission to expand | Talent mobility | Taxation |Currencies

Reward
When expanding, a business should have to decide on its reward strategy. Different options are possible all of which with significant personal tax and corporate tax implications. 

Gaining permission to expand
Gaining permission is critical and varies for different entities. Corporate entities may need approval from their shareholders, LLPs and partnerships need permission from their members and partners. 

Talent mobility
For some businesses expanding overseas means moving domestic talent as well. This could bring immediate awareness of the domestic firms’ policies and practices in the new location as well as assist in culture transfer in order to bring alignment to the way work is undertaken. 

Taxation
Considering the tax impact is also important. Not just in terms of the administration of the tax affairs, but also the interaction of various taxes on each other and the resulting consequences. 

Currencies
When operating overseas, businesses will be become exposed to currency fluctuations which can impact reported earnings and cash flows.

Setting up | Regulation | Management & control | Post set up | Withdraw

Setting up
Once a business has decided to set up in new territories, it is essential to get good advice from local advisors as an understanding of the local legal and filing requirements is needed.

Regulation
Businesses should be well-informed on the regulations of the overseas territory.

Management and control
It is important to decide how to run overseas operations, a decision that depends on many factors including personal style of management and the level of trust in the local team.

Post set up
Once a business has been set up overseas, senior management should be allowed the time needed to manage the operations, acknowledging the importance, risk and benefit of those operations, in order to ensure alignment of the international firm.

Withdraw
BDO concludes its tips by exploring the question of “What if it doesn’t work out?” According to the firm, the management team of the business planning to expand should also consider the consequences and costs of this option beforehand. “The original plans should show an expected budget for the new operations and these should be carefully monitored. Plans will always change but occasionally a decision will need to be taken to withdraw […] Walking away before a deal is done could be the right choice – despite the time and effort taken to that point.”

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.