• Thursday, March 28, 2024

Uncategorized

Handling finances when you have foreign accounts

By: Admin Super

With more and more small businesses now operating internationally, it’s increasingly common for business owners to have to manage bank accounts in multiple countries. Handling your finances in this situation gives you some additional obligations and can also entail extra costs, but if you know what you’re doing, you can keep these to a minimum and enjoy the advantages of your position without incurring any significant disadvantages.

Why use foreign accounts?

A lot of start-ups don’t bother with foreign accounts but immediately translate any foreign payments they receive into pounds sterling and keep them in a single domestic bank account. The trouble with this approach is that it means that you can’t control for fluctuations in the exchange rate – you just have to accept whatever is available, even if it’s a very bad deal. In an ideal situation, this would even out over the long term, but in reality it can take decades to do so, something that few small businesses can afford. When you have foreign bank accounts, you can avoid the problem by waiting for the opportune moment to make transfers.

Additionally, you will need foreign accounts if you are running franchises in other countries or if your British operation is in itself a branch of a company you started elsewhere. In many countries, a local bank account makes it much easier to do business. Keeping some of your money in other currencies in other countries helps to spread out your assets and makes it easier to recover if any one currency undergoes rapid depreciation. If you don’t travel often and you find it difficult to manage your foreign accounts, ask your British bank if it can set up such an account on your behalf. You’ll find the Nostro account explained by ForexTraders if you’re not sure how this works.

Bookkeeping and tax returns

No matter where you keep your money, all the records that you submit to HMRC as part of your annual accounts need to be in pounds sterling. Payments made in foreign currencies should be recorded in your books in pounds using the exchange rate applicable at the point of their arrival. You will also need to record any outgoing money – i.e. that used to purchase goods or equipment in foreign currencies – in this manner. At the end of your financial year, the figures from your foreign accounts will need to be entered on your balance sheet in pounds.

Managing money transfers

When you keep accounts in multiple currencies, you will need to be able to transfer money between them with as little loss as possible. To do this, you need to go beyond simply waiting for a good day when the exchange rate is favourable. You need to follow fluctuations in the rate on a day-to-day basis so that you get used to the way it moves. You need to keep track of any big economic, political, military or environmental events coming up that might cause significant changes in one of the countries where you keep an account, and you will find it helpful to follow expert predictions. This will make it much easier for you to move your money at the optimal time – when the rate has reached as favourable a point as it is likely to and before it falls again. It will also let you plan money movement in advance, so you can predict how much money you will have available in any one currency at any one time, making it much easier to manage business operations.

When transferring money, bear in mind that there are lots of institutions out there offering different rates at any given time. Don’t bind yourself too closely to one. Make that sure you have the opportunity to take advantage of the best available deals.

One way to reduce losses when exchanging currencies is to hedge your transfers using forex. This involves taking out a position whereby you stand to make money if the currency pair involved shifts in the direction least favourable to your exchange. For instance, if you wanted to exchange rupees into pounds and get as many pounds as possible, you would take out a forex position that saw you profit if the value of the rupee fell compared to the pound. This approach means that any losses are cancelled out (if the exchange rate moves in the other direction, your forex losses will be balanced out by the gains you make from the currency exchange). By reducing uncertainty, it makes your business more stable.

Using techniques like this will help you to make the most of your foreign bank accounts and avoid running into trouble. It helps you make your finances much easier to handle.

 

 

 

Related Stories

Videos

Mrunal Thakur on Dhamaka, experience of working with Kartik Aaryan,…
Nushrratt Bharuccha on Chhorii, pressure of comparison with Lapachhapi, upcoming…
Abhimanyu Dassani on Meenakshi Sundareshwar, how his mom Bhagyashree reacted…