International expansion: 5 key steps for finance teams in SaaS companies
International expansion is a key growth strategy for SaaS companies. But it brings with it a number of challenges, especially for finance, HR, and compliance teams.
The SaaS business model is in many ways perfectly suited to expansion. Your overheads are typically low, and you don’t have physical supply chains to put in place. Expansion should be easy.
And the challenges tend to be more internal - HR processes for employees, incorporating (or not) in those local markets, and tax. For CFOs, these are serious considerations.
In this article, we review the five main steps for the finance department to ensure the successful international expansion of a transactional SaaS.
About the author
Alvaro Alfonso is Head of Finance at Fourvenues, a SaaS company that helps nightclubs manage all their sales channels as well as get a better analysis of its CRM data in order to increase their revenue and improve the performance of the nightclub teams.
1. Verify legal and money laundering requirements
This first step is fundamental: you must verify whether the destination country allows the sale of SaaS in the first place. If not, you can’t really do business.
It’s also important to make sure that the country is not subject to international financial sanctions. Some jurisdictions can’t legally send and receive money from others.
When you’re looking at North America, Europe, and much of Asia, you won’t have too many issues here. But it pays to be sure, nonetheless.
The finance department should gather information on local laws and regulations. Most likely, you’ll consult with a lawyer specializing in international law, and tax experts with a detailed understanding of your potential new market.
2. Scrutinize the platform’s fit
Globally speaking, this is for the Product team to handle. But as finance experts, you can give them the clear must haves for customers’ own finance teams to use, and some basic compliance requirements.
Your SaaS platform must be configured to suit the market. It needs to work with the local currency, country of business and bank account format. In addition, the platform must comply with local data privacy and security regulations.
In the local context and culture, the user experience on your platform must not be a point of friction. Does your SaaS have the necessary details to use right away? Does the user feel comfortable? And have your teams thought about reaching the right people and successfully embedding the software with the local ways of working.
Again, the finance team is most likely not the key decision maker here. But you do own the budget, which means you need to approve what will be a significant item on the P&L. Push your teams to ensure that they’ve thought this through fully, before freeing up the cash.
3. Analyze local tax requirements
Each country has its own tax and invoicing peculiarities. It’s important to analyze these requirements to avoid problems with local authorities.
Some of the aspects to be taken into account include:
Taxes: Taxes vary from country to country. What taxes apply to SaaS sales in the destination country?
Invoicing: Are there specific e-invoicing requirements or essential processes for how bills are sent and processed?
Payments: Do the same payment providers and processes you use today (Adyen, Stripe or Chargebee, for example) operate in this location? Can you easily charge customers and receive payment?
As with the corporate structure and bank accounts below, you’ll want local advisors to help get the lay of the land.
4. Decisions on the corporate structure
One of the main advantages of selling SaaS services is the relatively light structure necessary to sell anywhere in the world. Usually, a new customer can sign up and start using from just about anywhere (depending on your business model).
So you may not need to create a new corporate entity or set up physically in the local market at all.
The corporate structure in a new country depends mainly on whether you plan to have employees there. If there are no employees, it will probably not be necessary to incorporate.
But in most cases, you’ll need local sales representatives (at least) in the expansion countries. That means a skeleton office, with local experts, paying local taxes.
If you do decide to hire employees, it may be best to incorporate a local company to avoid registering the parent company in each new country. This way you avoid international tax issues.
And it may be smart to protect the parent company from liability issues, should any arise overseas.
You’ll otherwise find new services (often startups themselves) that have recently appeared to hire your international employees for you. Even though this can add fees, you can start operating quickly without the need to incorporate.
This may be an interesting solution until you start generating revenue in each market.
5. Opening bank accounts and hiring advisors
If you do incorporate your SaaS business in a destination country, you’ll need to open bank accounts and hire local advisors.
For me, opening a bank account internationally is undoubtedly one of the most arduous processes in which a CFO finds themselves. And I usually recommend having two bank accounts per company (it’s always important to have a backup).
To speed up this process, it may be a good idea to open an account in a neobank, and another bank account in a more traditional, consolidated bank in the new country. This gives you speed and agility (the neobank), with the reliability and security of a more seasoned bank.
Advisors will help you comply with local laws and regulations, especially local tax and labor laws. Be sure to give them a comprehensive understanding of how your business operates, and how they can best serve you. You never quite know how their particular experience will come in handy, so help them help you.
Get prepared to go international
When opening a new market, the above are table stakes. Without a plan for each, there should be no expansion.
These do not exclusively affect the financial department, but its work is essential for the operation to run smoothly. The CFO hopefully brings the right mix of financial, fiscal, and operational knowledge to make this transition a success.
For more, watch our CFO Connect Summit session Developing Your International Expansion Playbook: