Show notes
These days Amazon businesses are getting more complex, and one way to add margin to your business is to extend to other countries. Today we are talking about the importance of understanding foreign exchange when buying and selling overseas. Since your business can potentially save a few thousand dollars, euros, or rupees, it is a good idea to use a broker for fx, where every little bit counts. Today we have an expert on to talk about the benefits of getting the best foreign exchange rates for your growing business and how having that broker can make a big difference. Jared Van Orden is a financial expert with GPS Capital Markets based in Utah. Since 2002, GPS has been the leading corporate foreign exchange brokerage firm dedicated to handling foreign exchange for companies, large and small. Jared's firm helps its clients exchange funds back into their working currency when selling overseas. Additionally, they exchange the currency of the country where clients are doing business and making foreign purchases. GPS Capital Markets deals in any type of transaction that has a foreign currency element to it and helps companies implement best practices. Episode Highlights: Jared explains the impact of WorldFirst Brokerage's US operations closing. The cost difference between using an exchange broker and being directly exchanged via Amazon. How getting the best exchange rates can affect an exit. Savings opportunities when purchasing goods from overseas, particularly China. Opportunities in other countries such as Thailand and India, a broker can offer. How the cost of a product going up or down can affect the exchange rate. Can sellers set up an EU bank account if they're a US company and what are the tax ramifications? The advantages of multi-currency accounts set up in the country where you do business. Understanding VAT and using an experienced accounting firm for taxation. Transcription Mark: Everybody for those of you that have been long time listeners of the Quiet Light podcast you've probably noticed that we have a brand new shiny introduction to the podcast. Let me know what you think. I like it quite a bit and there's a point in that introduction where there's a movie quote. We thought we would just throw this in there really for no reason other than it's somewhat fun. So here's what we're going to do, if you know what movie that quote was from send me an e-mail at mark@quietlightbrokerage or e-mail Joe at joe@quietlightbrokerage. For those of you that think that this podcast is actually Joe's podcast, you can do that. Let us know what movie it is from and we'll give you a shout out on one of the future podcast episodes. So what movie was that from? And Joe I got something just really funny. Just to tell you briefly I was just at Traffic and Conversion out in San Diego and we were talking about the different people at Quiet Light Brokerage and somebody actually told me that they thought that what you did at Quiet Light Brokerage was the podcast. So that's all that you did. Joe: That's all that I did? That's all I do? Mark: That's all you do. Joe: Oh. Well you know I wish it was all I did and my life would be a lot easier and I'd sleep better because the podcasting is the easiest part. All I do is talk and you and the content team, Chris, everybody else they do the rest. Podcast Motor; they make my life easy. So cool I wish … maybe that will come true someday. The other alternative versus mark@quietlight or joe@quietlight … you don't have to play favorites you can just send it to inquiries@quietlight and put movie quote in the subject line. And that way both Mark and I will see it and we can call you out and tell you we love you and that you picked the name of the movie. But listen we should talk about— Mark: Well on that be honest if you use Google like I do with every single one of these tell us that you used Google just to find it. Joe: Well when you were showing me this sample and you gave a movie quote I did, in fact, Google it. So don't cheat like I did folks. I knew what it was. I was pretty sure I knew what it was. And it was maybe people we can … I know I won't want to confuse them with the intro that is not pride to this. Anyway, we have a new guest; a person that specializes in foreign exchange. And it's something that you and I don't have a whole lot of expertise or experience in. His name is Jared Van Orden. He's from GPS FX. I met him at the Prosper Show last year and we talked a little bit about what they do. And finally because of some things that have happened with a company called World First we decided to get him on the podcast and talk about saving some money for the folks that do sell overseas and also buy from overseas manufacturers. Mark: Yeah. I'm sorry I thought you were going to continue talking. I didn't know you were done. I usually when you talk I just kind of tune you out so I— Joe: I know. I know. Mark: Well look the Amazon businesses are getting more complex and one of the best ways to expand and grow your business … any e-commerce business but Amazon specifically is to go into different countries. And when you do that there's going to be added complexity but also added areas for margin. And one of the very simple ways … and I talked to Jared before at Prosper Show is just that right? Looking at the foreign exchange this is an area where you can definitely add margin to your business. And it's an area that frankly I don't know much about so I'm glad that we have somebody who does know a lot about this to come on and talk about it. Joe: Yeah and let me just say real quick before we go to the podcast Mark is mentioning margin and it's important if you're going to save a thousand dollars a month on foreign exchange by doing it right. Or another thousand a month by using a foreign exchange company when you're placing orders overseas. That's $2,000 a month; $24,000 a year. That could result in an additional 75 … a hundred thousand dollars onto the value of your business so every little bit counts. Please listen to the entire podcast because Jared does a really good job of explaining the entire process. Mark: Awesome let's get to it. Joe: Hey folks Joe here at Quiet Light Brokerage and today I've got Jared Van Orden with me on the phone. Hey Jared, how are you? Jared: I'm doing great Joe. Joe: Awesome. Well as I said in our little chat before, today I've got a guest on talking about a subject that I know very little about which is great because I'm going to ask a lot of dumb questions. But before we go into those dumb questions that I'm going to ask and questions that I think will help the buyers of internet based businesses selling physical products and selling overseas; sellers of those save some money in the future why don't you give a little bit of background on yourself so folks understand who you are and what your company is and what you do. Jared: Sure. Thanks, Joe. So I'm with GPS Capital Markets. We're a foreign currency exchange brokerage that headquartered out at the United States; Utah actually to be exact. And we do all things foreign currency exchange. So we help companies specifically if they have revenues that are being collected in a currency outside of their functional currency, outside of the currency they use on a day to day basis. A US seller that's selling in to the UK; we help them to exchange those funds back into US dollars. Or a company that's paying for products in a foreign currency; we help to exchange funds from US dollars into those foreign currencies. And you know that it can be on a revenue cost basis. We help companies to acquire other entities overseas or to sell other entities; any type of transaction that has a foreign currency element to it. We really go out and try and help those companies number one to find the best practice solution to what they're doing. Sometimes that may mean not doing business with us but to help them find really what's going to fit best for their unique situation in dealing with foreign currencies. And then help them to implement that strategy if at all possible. It could be anything from just converting funds to locking the exchange rates for them. Joe: Excellent. I've dealt with this a few times over the years when we've got people that are not US citizens. They're … I just did one in Germany last year and the exchange rate was a major factor in terms of the timing of when we're going to close a transaction for him because it was being sold … purchased in US dollars. And I've had a lot of Canadian folks as well and folks from different parts of the world. But the big savings here and the way that people ultimately and this is what we look at can boost their bottom line discretionary earnings. There's many, many different ways to do it but the key here is a one or two or three percent savings in that foreign exchange. We're on this podcast because your team had sent me an e-mail. We met at the Prosper Show last year. I think you'll be there this year. We will as well. But you had sent me an email in regards to World First which is a very well-known foreign exchange firm that they're closing their doors. Can you touch on that a little bit for those folks that are currently using World First and may not know about this and what's … how it's going to impact their bottom line? Jared: Sure World First is actually a very good exchange brokerage. It has been around for quite a while and they had been helping a lot of Amazon sellers in the seller space to convert their funds from the foreign marketplaces back into US dollars. Basically, this is another option rather than using Amazon … to let Amazon convert those revenues for you into US dollars. And what happened is that World First is in an acquisition type situation where a foreign buyer out of China was looking to acquire the company. But because of some of the blocking that the US has done for Chinese financial companies purchasing US corporations that transaction didn't look like it was going to go through with World First US operations. And so World First sent out an email here back in January to all its clients saying that their US operations are going to be closing immediately. And that leaves a lot of our Amazon sellers in a situation where they're no longer going to be able to use that service with anywhere less than about a 30 day notice that after February 20th which is today you cannot use World First services if you are a US Canadian corporation. So those services out in US and Canada are no longer available to you. Now that doesn't mean that World First just quit doing business if you're a UK seller that's doing a business in the EU that services still can keep working for you. It's really only affecting the US companies that are based out in the United States and Canada. Joe: Okay so if we've got a US company or a Canadian company doing a $100,000 a year in revenue in the EU and they were using World First and they just default back to using Amazon what's the cost difference in terms of the exchange rate, what they're going to be left with? Jared: It's going to be pretty substantial. I mean if you're using Amazon, every two weeks Amazon sends your revenues back to you and if you have not entered an EU or UK based bank account those funds get exchanged by Amazon and sent to you every two weeks. And by default, the exchange rate that they're giving you is not what the market exchange rate is. It's actually the Amazon exchange rate they provide to you and it's over 3% off market. So if you're doing $100,000 in sales over there you can expect to only get $97,000 back or a little bit less than that because of the exchange rates that come that with your Amazon's platform. Joe: And if that same seller was using say you guys or World First what kind of rate would they have been getting? Jared: It would have been at least 3% better than what they were currently receiving at the time if they're through Amazon. Joe: I'm confused. Do the math for me. Jared: Amazon is around 3.75%. It's kind of where they come in at on their mark up on the exchange rate. Joe: Okay. Jared: Whereas if it's coming through GPS you're going to see significant or any other broker that is helping the Amazon sellers you're going to see significant reduction that oftentimes two to three or more percent back to you for those conversions. Joe: So you go from you're at 3.75% which is the default Amazon number … and these are just numbers that float and change I would assume. Are we looking at a full percentage point, two percentage points … are you talking 2% versus 3.75%? Jared: I would say for most of the brokers including GPS you're looking at two to three percent back in your pocket on the exchange. Joe: Yeah that seems really high just given that … I mean two to three percent. So you go from 100,000 if it's 3.75 with Amazon that's $3,750 you're going to save 3% by using GPS or if they were with World First is that only costing them 750? Jared: Yeah. Joe: Really? That's a huge difference. Jared: It's a huge difference. And that seems really high but in all reality that's actually pretty on par with a lot of other methods that are employed right now. If you're in e-teller and you have your own website. So you're selling on Amazon but you're also selling on your own website or in the UK your credit card processor is collecting those funds and oftentimes they're converting the foreign revenues into US dollars and placing them into your account. You're often losing 2.25% on that conversion and often a 1% to 1.25% cross border fee that's charged to you. And so that's 3.25 to 3.5% that you often lose on that conversion even if it's coming through a credit card processor that may be integrated to your Shopify account or some other online platform. So it seems really high but you'd be surprised that currency conversion buffer is in there for most conversions. Joe: Okay so a simple math again though if someone's doing $100,000 in foreign currency, a foreign land they're going to save 3% by using … if they were using World First or using a firm like yours. That's $3,000 for every 100,000. So if they're doing a million it's an awful lot larger. Just to break it down further for those that are listening if you've got a business and you're planning to exit in the next 12 to 24 months and you're paying these high numbers that Jared's talking about not only is it hurting your bottom line, taking money out of your pocket but you're also devaluating your business. If your business is worth a three time multiple of discretionary earnings, if you're losing 3,000 in currency exchange you're taking $9,000 off the value of your business. If you're doing a million overseas and that's going to be $90,000 off the value of your business in terms of these additional expenses. I had Mike Jackness on the podcast and hopefully, you guys listened to it a couple of weeks ago where we talked about his exit and one of his businesses. And he and Dave on eCom Crew always talk about that revenue is sanity… revenue is ego … I'm getting this wrong I know but profits are sanity. Too many folks focus just on the top line and don't focus on that bottom line profit; renegotiating cost of goods sold, looking at foreign exchange rates and making every dollar count will help you build a more valuable business. And it actually instills confidence in your buyers as well because they see that you're running a real business and you're doing what you can to make it as profitable as possible. All right so I ranted there for a moment Jared, sorry about that. You mentioned …at one point you said you can … if people are buying products in a foreign land are we talking about currency savings, cost savings if someone is buying product from China because a lot of folks have got e-commerce businesses are importing from China and spending tens of thousands if not hundreds of thousands a year. Is there an exchange rate opportunity … savings opportunity there when they're buying from a foreign manufacturer or did I misunderstand that? Jared: There is and you know there are two parts to that answer so maybe I'll dig in a little bit. China is unique. A lot of these products are coming out of China and a lot of these companies in China they want US dollars when they're selling to you. That has a lot to do with in the past you know China has controlled the exchange rate between the US dollar and the Chinese or in the CNY CNH [inaudible 00:15:59.3] names for the currency; Yuan. When you are sending money over there in the past they have often wanted to receive US dollars. And in a time period where the Chinese currency is weakening, that's just an added bonus to these Chinese suppliers when they receive US dollars and getting it converted to their currency. They receive more for it. So in China most of the time you'll see that it's really hard to get any pricing outside of the US dollar and if you're being priced in US dollars because the supplier knows that they're not going to get your payment for 30, 60, 90 days they don't know what the exchange rate is going to be in 90 days. And so the Chinese suppliers will actually increase the price of your product to add a little bit of a buffer in there just because if the exchange rate fluctuates they don't want to be out one or two percent or more because the rates have changed between then and when they actually receive the funds. Now China aside looking at all other countries where companies may be purchasing your product, if you're having to pay a euro invoice to buy your product you probably hop on a banking platform to purchase those euro and you'll notice that the exchange rate that you receive on that transfer is not what you can see online on Google or any of these other sites that are recording grain rate. And that's because the rates that you're seeing online through Google and these other locations like Bloomberg or Reuters those rates are averaged rates of transactions of 5 million dollars or more. Some of these are 10 million dollars or more and those are referred to as market trades. And so if you're trading blocks of 5 million or 10 million at a time into these other currencies those are the exchange rates that banks are trading with each other at. Now we little guys who are not purchasing blocks of currency that big, when we go and buy foreign currency and go to send it to that supplier the reason we don't get that rate the banks are getting is because there is risk associated with us buying those funds. And so the banks mark up the exchange rate and it really have a lot to do with volume. Somebody who's buying a million dollars at a time, a million dollars' worth of euro at a time is going to get much more favorable exchange rate than somebody who's buying a thousand dollars' worth of euro at a time. Joe: What about some of the other countries that are more likely to be countries that folks would manufacture in like India, Thailand, maybe even Mexico? I've seen a few of those. Is there a … for folks that are buying in those countries, manufacturing in those countries, is there a currency exchange savings opportunity for them and if so how do they go about doing it? Jared: There is on those and again if you're just using a typical bank to do those transactions that may not be the best opportunity for you. Reaching out to a broker or one of these other companies, World First, GPS, and looking into what type of exchange rate that they give you on sending those wires, that could be really substantial savings. And there's a bank here locally near me that charges $50 per outgoing wire transfer and that is not the cost of sending a wire. That's part of the cost. So it might cost you anywhere from $20 to $50 to send an international wire to pay a vendor but then there's also that foreign currency element. Maybe your bank just doesn't have a great relationship when sending money to Korea and so the exchange rate they provide to you might be 3½ % off of market plus the $50 wire fee or $20 wire fee to send the funds to that country. And so the savings can be quite significant but it's going to be on a bank by bank, provider by provider basis and also looking at what currency that you're purchasing. Joe: So how does it work? If I'm manufacturing in India and I'm placing an order for $40,000 worth of goods, would I work with a GPS to lock in that exchange rate and you wire the funds over in whatever the Indian currency is? What is the Indian currency? I want to put you in the spot. Jared: Indian Rupees. Joe: Okay. Jared: So if you're sending … and you picked a good one, India has some very interesting tax laws over there and so if you're buying from an Indian provider and they're pricing you in US dollars you'll often see an INR price … Indian Rupee price printed on the invoice. And if you take that Indian Rupee amount and you just look on Google to see what the exchange rate is and you convert it back into US dollars well now you've got a US dollar cost on the invoice and then the US dollar cost that you back in to from the rupees. If you compare those two, you'll often see a very significant difference. I've seen up to 5% built in to the pricing for you to pay them in US dollars and that has to do with the way the funds get converted in the country and whether they receive a certain type of tax credit. But there are opportunities where if you pay them an INR … Indian Rupees you might get four to 5% right off the top in savings just simply because they're not dealing with the riskiness of achieving a currency anymore. Joe: So if I was manufacturing and buying $40,000 worth of goods from India for instance and I work through GPS I could save that 5% because you'd be able to wire over and do it in that. Is that $2,000? Am I doing the math right? Jared: There is very much that chance. And not just GPS I mean almost any institution in the United States that is doing it for you rather than sending over dollars. I mean in this case you're just sending dollars over there and it's being exchanged in country. Joe: Right. Jared: By simply paying the invoice in Indian rupees you might be saving 4% right across; four to 5%. Joe: Wow. So … and this can be done in multiple countries. China … maybe the opportunity is not as big in China because they want US dollars. Is that right? Jared: Exactly right. Joe: Okay. Jared: They typically want US dollars but some that's changing. China would like to become more of a global player and their currency is becoming one of the reserve currencies in the World Bank. You're going to see that change over the next few years. And there's real opportunity there but there's also a risk that comes in to it as well. If you decide to start purchasing Indian rupees to pay that supplier there is a chance that the Indian currency would strengthen 5% over the next year. Joe: Can you lock it in in terms of … because when people are manufacturing products they're putting 30% down and the other 70% when it's inspected and going on the boat. And that usually all happens within a 12 week period. Jared: I know. You're exactly right. And so the timing may not be really wide on those payments and so maybe the market isn't real significant but if you start paying a foreign supplier in their local currency and that may give you back some … a little bit of a discount on purchasing your product, but you also have to then take into consideration that you're now at risk that the Indian currency could weaken 10% in your favor over the next 12 months so going in 12 week increments but a year from now if the currency has weakened 10% then it's 10% in your favor but if the currency has strengthened over the next year, a year from now it's now 10% against you. And so you may have to make decisions on how to lock exchange rate ahead of time on those purchases you're going to make. Or you may have to go back to the negotiating table in order to get your pricing down a little bit with the supplier. Joe: And just to include it, the owners of these businesses their eyes are probably on the back of their heads right now because they've got so many things that they're supposed to be experts on but they don't have to be here. They can hire a firm like yours to do these things for them right? Jared: Absolutely. Joe: Okay. Jared: I would always look at what your costs are doing. Sometimes these companies and this … I'm glad you've mentioned that because there's a big misnomer here where a lot of companies think I'm buying my product in US dollars so it doesn't matter where the exchange rate go. That's not actually true because if I'm in China and I'm receiving your US dollars and it's a hundred thousand dollars today, if the Chinese Currency strengthens 10% at the end of next year I'm only getting $90,000 worth of [inaudible 00:24:11.1] when I receive it. And so I have production costs in country and if I'm no longer able to be profitable I have to raise your price. And so some of your clients here they may see that they've been buying the same SKU for the last 10 years and then we see that the price of that SKU has gone up and down over the years even though they're only buying it in US dollars. And that has a lot to do with the exchange rate. If the costs go up and down to the supplier they have to adjust the pricing even if it's in US dollars. Joe: Okay. You had mentioned something earlier about I think I heard you say EU bank account if you don't have one the funds are going back to your US account and charged in exchange rate. For those that are selling in the EU let's say via Amazon are you … or should they have an EU bank account and can you do that if it's a US institution or US corporation? Jared: Okay so that's a really good question. Let's look at that in a couple of parts. So one is if I'm selling into Europe, I'm selling into the EU, let's use Germany as example. If I'm selling my products into Germany on Amazon if I don't log on to my seller central account over there and punch in a Euro bank account Amazon automatically converts the funds to dollars every two weeks. So you have an option if you could go over and get an account in the EU set up. So you go to Germany and set up an account in country. You could have those funds go to that Euro account and pool into that account and if that account has online access you could manage it from here in the United States and send the funds back to you however often you want. Joe: Just to be clear you're saying … you mean a bank account not a Seller? Jared: A bank account, yes. Joe: Okay. Jared: So you can open an in-country bank account. Joe: Can you set up an in-country bank account in all of the EU countries if you're a US corporation or LLC? Jared: You're likely going to have to go over and register in country. Joe: Okay. Jared: So there is going to be some tax Nexus situations that are created by that. So another option you have is you can go to your bank here in the United States. You can go to a GPS and you can say I would like to get an account in-country over in EU. And so in the case of GPS, we would open an EU account for you in euros and this is referred to as a multi-currency account. And this multi-currency account is an account that is assigned to you. You're likely not going to have to register any country that you use this account. And then you can now take your euros and login to your Seller Central account and plug in that euro account into Seller Central and now those euros are going to pool into your own multi-currency account. One of the big advantages of that account is if you have cost in Europe so you have to pay VAT back. You can simply take those funds and pay those taxes out of your own account … this account, this multi-currency account. Or you can take all the funds and convert it back to US dollars. Joe: I got you. You know I … we had Avask Accounting on the podcast in 2018 talking about that. And I do know that they actually help people set up EU bank accounts as well as part of it. And folks can find them at AvaskAccounting.co.uk. And then use a company like Jared's for the foreign exchange as well. Just quick math if based upon what we've talked about is somebody doing $100,000 in revenue they're going to save a couple of percentage points; $2,000 by making sure they're using good foreign exchange. And then if they're not; if they're manufacturing overseas, if they can save another 5% on that $40,000 inventory purchase that's in India for instance that's another $4,000. Folks that $6,000in savings, money in your pocket and if you're selling your business for a three time multiple that's $18,000 added on to the value of your business. And you can adjust that number in any way that you want. But these are the things that matter when you are growing your business with an eventual exit in mind or if you're buying an interest … buying a business and you want to increase the discretionary earnings and build equity right away. These are some of the things you can look at. Jared, I appreciate your time here. It's a complicated subject. How do they find you? What is your web address and how can they reach out to you either via e-mail or finding your website? Jared: Okay so our web address is www.gpsfx.com and to get in touch with us it's just usually a phone call at 801-984-1080 and then I can send you my e-mail but I'll state it here as well. My email is [email protected]. Joe: Awesome. That's great. Jared: And if people just have questions I'm happy even just to answer questions that point you in the right direction. If someone has listened to this and they're like I think I have this but I just need some help on it I'm happy just to point you in the right direction as well. Joe: I appreciate that. That's why we have you on because you're here to help first and build value so I appreciate that. Folks I would encourage you to reach out to Jared and his team over there and see if you're overspending and if you've got some savings there. Jared, I appreciate your time. I look forward to seeing you at the Prosper Show. Jared: Thanks, Joe. You too. Links and Resources: GPS Capital Markets Contact Jared