When U.S. business owners diversify overseas, they must adjust to foreign accounting systems. That's not so simple, says Robert Davies, president and CEO of Software Business Technology (SBT), a Sausalito, Calif., manufacturer that has been involved in joint ventures and other arrangements in both Eastern and Western Europe.
Case in point: in Poland, where SBT recently concluded a software-licensing arrangement, most business managers lacked the accounting wherewithal to handle forecasting, budgeting, inventory management, and other key matters. "Accounting rules there were designed to maintain secrecy," Davies explains.
To avoid accounting misunderstandings that could hurt your bottom line, Davies recommends that you --
* Establish a relationship with a local business partner who understands the country's rules. "We have dealings in 70 countries, and there's no way under the sun we could stay current on accounting requirements, especially in places like the United Kingdom, Germany, and Australia, where rules are as rigorous as ours," says Davies. In Poland he relies on SBT's licensing partner, Torun-Pacific, to handle day-to-day financial reporting.
* Be prepared to educate your foreign partners, licensers, and employees about U.S. accounting norms, even as you're learning the way their systems work. "In Poland, where payroll used to be written up behind closed doors, it took people quite a while to get used to U.S. attitudes about such matters as accurate, timely financial communication," recalls Davies.
* Avoid miscommunication by using a single accounting-software package for your entire company and then modifying it by country, as necessary. In Poland, where accounting differences even include the lack of decimal points, it took SBT two years to adjust its own business-software package.
* Assign a top finance officer to research and supervise all financial-reporting and accounting matters relating to foreign ventures. But don't expect miracles: "When we expanded into Ireland, we researched every angle of the tax and accounting laws before we set up our deal," says Davies, "and we still lost money." -- Jill Andresky Fraser