Small Business

Overcoming the 4 Biggest Financial Barriers to Exporting

Taking on international customers can help entrepreneurs diversify, but it involves some unique challenges. Here's how to tackle them

Written by Jacoline Loewen

Every entrepreneur should be aware that one of the greatest detractors in valuing a business is customer concentration. Yet the structure of the Canadian market is such that it is clumped into regional clusters. As a consequence, customer lists can hit saturation levels pretty quickly.

Potential buyers, however, want to be confident that your business has potential for revenue growth—usually through broadening the customer base—and will examine your client lists closely.

One of the best strategies you can take to increase customer diversity is to look beyond Canadian borders for exporting opportunities.

Anna Janes, owner of Cocomira Confections Inc., a high-end confectionary manufacturer, found that “Canada has a halo. People from other parts of the world perceive Canadian food products as coming from somewhere with clean air and healthy food. When they see Made in Canada, they can trust the product.” Cocomira’s export sales to the Middle East constitute 10% of the company’s overall revenue, and she has obviously used the Canada brand to her advantage.

Even so, exporting is not without risk and being a hesitant business owner is understandable. After all, the local Canadian market is predictable and steady.

Here are the four biggest financial challenges an entrepreneur new to exporting faces and how to overcome them:

1. Obtaining growth financing. Lenders and investors may be reluctant to accept out of country assets as security for loans. If your company requires $5 million or more to move into exporting, hire a corporate finance expert who knows the path forward in order to secure financing. For smaller companies, Export Development Canada (EDC) offers strong support services and should be your first call.

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2. Managing the financial cost of a long-distance relationship. Anna Janes piggybacked on the Ontario Ministry of Food and Agriculture’s programs, as well as those offered through the Canadian Food Export Association, Food Beverage Canada, Agri-Canada and also Canadian embassies around the world. Cocomira received invaluable assistance in setting up trade missions to Japan and the Middle East and navigating other countries’ cultures. Says Janes, “My sales director attended trade shows [abroad], which enabled us to learn about the market, scope the competition, make contacts, meet distributors and visit local retailers.”

3. Longer cash flow cycles. The distance between buyer and seller lengthens cash flow cycles as it takes longer for the product to reach the retailer and then to get paid. A good broker will help stabilize payments, making your cash flow more predictable. This is because he or she knows the retailers in the country where you’re doing business. The broker’s long-term relationship with retailers reduces the risk of not getting paid as well as other risks, such as having your product packaging copied.

4. Getting paid in foreign currency. Canadian owners tend to be savvy with foreign exchange rate risk probably due to experience with Canadian and U.S. exchange rate fluctuations. Canadian firms locked into long-term sales contracts with American companies saw their profit margins erode in value, yet had to accept the situation for the life of the contract. Business owners must be sure to have a strategy in place to hedge against foreign currency.

Read: Setting the Right Price for Foreign Sales

Given Canada’s sheer size, along with each province’s unique regulations, rules and quirky customers, many owner-operators are, in fact, already familiar with dealing with far away markets. Exporting presents similar challenges: geographic distance, unique customer tastes and complexities around various regulations.

Moving outside domestic borders will benefit business owners in the long run. When the time comes to sell your company, you will be able to show a robust client list that will add considerable value in the eyes of prospective buyers.

Join your fellow exporters and discuss the challenges of working in global markets in the PROFIT Export Exchange on LinkedIn

Jacoline Loewen is a director at Crosbiewhich develops customized financial strategies, particularly in relation to buying and selling firms, M&A, financing and corporate strategy matters. Crosbie also focuses on succession advice for family businesses and closely held small to medium-sized enterprises. She is the author of Money Magnet: How to Attract Investors to Your Business.

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