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Finance & ControllingManagementExpert Information - 27.02.18

International Success Starts with Accounting

Companies who want to successfully manufacture and sell their products abroad do well to take care of organizational things first.

When in Rome, do as the Romans do ─ and comply with their regulations. This is especially true for finance. Accounting systems differ from country to country ─ even in Europe. In this article, the ERP provider proALPHA outlines pitfalls of accounting and gives tips on how to best enter foreign markets.

When companies internationalize their business, they often ignore one key factor: accounting. Despite international standards, each country has its own regulations and special accounting principles. Here are two examples: company-specific charts of accounts do not exist in France. Instead, there is a general chart of accounts, the so-called Plan Comptable Général, which has to be used by any company doing business in France. In some countries, tax authorities stipulate specific data transmission formats, such as Poland, where the Standard Audit File (SAF-T) was introduced in 2016.

The following guidelines help you take the right approach to internationalization.

Know the Law

The definition of your company's legal form and name is only the first step. While some countries only demand that a company has permanent establishment, other countries stipulate the foundation of a legally independent subsidiary. Moreover, the company name might have to be translated, as it is the case in China. If you start to inform yourself about required proofs of conformity and other certificates early on, you are definitely on the safe side.

It is essential that you know which accounting principles are used in a country. ERP providers like proALPHA offer localized components to help you map country-specific regulations. They ensure that all of your accounting processes, including the creation of profit and loss statements, comply with a country's legal requirements. For example, your ERP software should allow you to choose between the total cost method, cost of sales method or a combination of both, with or without work in process (WIP).

If you use special applications such as group consolidation functionalities, make sure to keep an eye on the effort required to keep them running.

Ideally, such applications should draw on the charts of accounts, currencies and postings stored in the ERP system, thereby reducing the error risk to a minimum and avoiding duplicate entries.

Provide Accurate Information to Authorities in Time

Never underestimate reporting. Hungarian tax authorities, for example, want information about issued invoices to be provided immediately ─ and in up to three currencies: euro, forint, and a third currency, if applicable. If you want to establish efficient digital administration processes abroad, you best inform yourself about legal requirements before entering a foreign market. This helps you map country-specific regulations in your software correctly, such as German GoBD (generally accepted principles for keeping and storing accounts, records and documents in electronic form and for data access). Some ERP systems have such regulations implemented as out-of-the-box features.

Know the Tax Rules

Taxation is another key factor in internationalization. It definitely pays off to inform yourself about tax exemptions or simplifications. If you transfer employees within your group, make sure to find out early which of your companies has to pay payroll tax. Note that a country is not necessarily the tax territory. In the USA, for example, tax rules differ from region to region, such as sales tax. Your accounting software needs to be versatile and has to allow tax territories to be defined based on ZIP codes, if required.

Make Use of Funds

Public authorities promote expanding companies by offering numerous types of funding and consulting. Institutions such as the German Federal Office for Economic Affairs and Export Control and German Trade & Invest support small and mid-sized enterprises in participating in such development programs. Perfect timing is key here: applications usually have to be handed in well in advance.

Assess and Protect Yourself Against Risks

Doing business abroad entails more risk. One reason for this are unfamiliar target markets and business practices. Another reason are export and payment restrictions that apply to business transactions outside the European Union, in addition to credit and currency risks, against which you can protect yourself with guarantees. For example, embargos have been imposed on a number of countries. Receivables management in an international context poses a real challenge, too. Be it guarantee management, the cooperation with international reporting agencies, hedging or factoring, accounting in promising target markets is complex and multi-faceted. However, you can master it with the help of software that is tailored to international business transactions.

Support Your Employees Worldwide

When you enter foreign markets, related legal and fiscal requirements have to be mapped in your system. However, you also need to ensure that your employees around the world can work efficiently with accounting and ERP software. This means that the software's graphical user interface needs to be available in the users' language. Moreover, it has to be possible to enter data in any language. Modern software therefore must support unicode and multiple currencies. One aspect that is often neglected is that different date formats and time stamps from various time zones have to be mapped, too. This is indispensable for audit-proof archiving of documents.

Develop Reporting and Controlling Concepts

One of the most important preparations is the creation of a multi-company data model. If future analyses and consolidation options are integrated in the data architecture from the very beginning, only few modifications will be required in reporting later.

When planning to start doing business in a neighboring country or overseas, you have to take sales-related and accounting factors into consideration. Developing administration and accounting concepts well in advance will give you a head start in your future target market.

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