In the previous part of our series on expansion costs, we focused on the costs associated with customer support, when you should build your own team and, on the contrary, when to use the services of an agency. In this part, fifth one already, you will find out what to keep in mind when managing accounting, how to guard the business rights of a given state and how important role does the reverse logistics play in the expansion of e-shop.
Accounting governance and the legal framework for business
- Cooperation with an accounting firm that will cover complete accounting will cost 200–1500 euros/month.
- Don't forget to register for VAT. Businesses face heavy fines for tax evasion. New rules apply for foreign VAT registration from July 2021, i.e. One Stop Shop.
- Attention to data protection. Requirements may vary from country to country and this is a very sensitive area.
- Pay attention to the latest legislative changes, they can save you work and reduce costs. Last but not least, good legal preparation will help you avoid possible penalties later on.
When you entered the market, you established a local bank account for transactions in the local currency. Don’t expect any additional costs here. However, from a legal-legislative perspective, once you start generating sales, you are dealing on a regular basis with things like accounting or payroll or costs associated with being in the market, setting up a subsidiary in the market.
First of all, you need to register as a VAT payer and sort out invoicing. In addition, the accounting system may vary from country to country, “which is why more than 90% of companies end up hiring a person to manage the accounts for each country separately,” adds Tomáš Vrtík, Managing Partner at Expandeco. For many companies, expansion also means investing in IT and backend, for example issuing invoices in different currencies and with different VAT levels. In this case, however, it is a one-time investment that ranges from a few tens of EUR to thousands of EUR.
Facilitating the payment of VAT with One Stop Shop (OSS)
Until July 2021, individual countries had a given level of sales, after which an online shop had to register as a VAT payer in the country. You don't have to remember or keep track of these numbers anymore. New EU legislation charges a single tax for all exporters: you will pay from the moment your total sales abroad exceed EUR 10,000. You now only need to register for VAT in one country – the country where the company is based whether you sell in one, two or 20 markets.
Terms and Conditions (T&C)
Creating general terms and conditions for each country in which you do business is time-consuming and costly. The other extreme is to download a free template on the web and hope nothing happens. We do not recommend this option, after all, the GTC protects not only customers but also you. However, consumer rights and data protection in the EU are subject to uniform standards, so in 95% of cases the main points of the GTC are similar across countries. If you've gone to the trouble of having the Czech wording translated to match Czech commercial law, you can have it translated by a vetted firm, with the translators adjusting it to local nuances. In this case, you pay roughly a price of EUR 150. Preparation “from the ground up” by a law firm then costs from EUR 500 upwards.
For whom is the establishment of an LLC ?
A local LLC is worthwhile if you are opening a brick-and-mortar store or showroom locally and want to hire employees. Sometimes the reason for starting a company can be to gain more credibility and respect as a so-called player from the East. This is true when expanding into the UK and the Dach region (Germany, Switzerland and Austria), but even the popular Hungary has a stricter bureaucracy and setting up an LLC can paradoxically make it easier rather than harder for you. The one-off set-up costs can range from EUR 1,200 (Hungary) to EUR 5,000 (Germany).
Data protection and other legislation
In addition to accounting and tax issues, it is also important to be aware of the overall framework of the commercial law of the country when entering foreign markets. For example, the mandatory information on products or the conditions for making a claim may differ. As in other areas, it is possible to deal with this on your own or hire a legal advisor who deals with international commercial law. The complete documentation by the law firm will be in the order of several thousand euros.
We must not forget about data protection. The General Data Protection Regulation (GDPR), which regulates how to handle personal data of natural persons, has been in force since 2018. In addition to name, surname or date of birth, personal data subject to stricter security include IP address, photographic record or organisational data of natural persons engaged in business (email address, telephone number or other identification data).
Logistics: storage, collection points, transport
The price of shipping and the speed of delivery is one of the key factors that customers use to choose who to buy from. The speed of transport is also increasing due to the pandemic, so many online shops are now opting for a strategy of one central warehouse in the Czech Republic, from where they send goods all over Europe. Delivery times to Germany today are just 1 day, to France 2 days and to Romania or Bulgaria 2– 3 days.
Customers send in returns that our on-site worker receives, sorting and scanning the returns. You can see in real time who to refund or send new goods to.
Vrtík and his team recommend checking with your current carrier for details on international delivery: “Ask your carrier for a quote for parcels abroad, they will often offer better terms thanks to their long-term cooperation. This will give you an idea of prices and you can also ask other freight forwarding companies for a quote.” If the prices of shipments abroad will be significantly different than shipping within home market, you need to consider whether the shipping should be reflected in the price of the product or whether you will have to count on a lower margin.
A successful fashion store dispatches between tens and hundreds of thousands of shipments a year, yet up to a third of orders may be returned. And reverse logistics is not only a costly challenge for the fashion segment, where 9 out of 10 users have returned at least one piece of clothing or shoes purchased online in the last three years: the average online shop generates 3-5% of unclaimed goods per month.
A collection point can help you tame, speed up and cheapen the flow of returns. You can rent the option of using local addresses and reverse logistics from companies like Expandeco, monthly fees for one market ranging from EUR 60 to 100. How does it work? You list the collection point on your website as the address for receiving claims and returns in that country. “Customers send in returns that our on-site worker receives, sorting and scanning the returns. You can see in real time who to refund or send new goods to. Customers don't wait. Stored and labelled packages are shipped to your warehouse or to another address at a time interval we agree. Your employees save time, everything is registered,” Foltánová describing the process.