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CEO's Desk: Cross Border Business

By Michelle Collins |

The decision to export was an easy one for Antonia Spritzer. Her company, COSS Systems Inc., creates software for small and medium manufacturers. Realizing that her product was easy to distribute and that she was competing with Americans already, she seized the opportunity to reach more customers.

"We were very knowledgeable about the market before we started going to the US. What happened is that we were able to put local sales people in places, train them based on what we knew in Canada and instantly started to get sales. It's been pretty easy so far."

Spritzer attributes her success to the quality of her product. Where her competitors were adding a lot of fluff and superfluous to their software she made an attempt to keep things realistic.

"I just find that Americans say our products does what I need it to do without all the fluff that I've seen in other packages. A lot of Americans see that we're just grass roots and that the software simply works properly and is designed for what they need it to do."

With a market 10 times the size of Canada and so very close, exporting to the States is an attractive idea for many small business owners. Yet the differences, both cultural and legal can be intimidating. But with some advanced planning and education you too could find success beyond our borders.

Crossing the border

Spritzer discovered very early on the advantage of hiring Americans to sell to other Americans. Her approach is to work through a consulting firm in the US who hires American people to sell her products. It is an approach that seems to have eliminated a lot of red tape.

"It was just getting far too hard to get consultants across the border every week. We went to hiring American consultants and just getting commissioned for the training time. You just run into far too many situations in the US, even if you're authorized to work there."

Then there is the cultural aspect. Spritzer also found that Americans were at times reluctant to deal with Canadian sales people, especially in places like Texas where it may be harder to blend in.

"These guys are hard working Americans and they want to deal with other Americans. There is always that nationalistic approach. It works the same here in Canada as well. We want to root for Canadian companies," says Spritzer.

While Spritzer developed a unique solution to her problem, sending employees over the border can be a simple and straightforward process, explains Paul Brace, a partner with Miller Thompson.

"It depends a little on the facts. If you're dealing with a situation where there are two companies on both sides of the border, an intra-company transfer is relatively simple. Another case where it's relatively easy under NAFTA is if you have someone who qualifies as a professional, then there doesn't have to be any inter-corporate relationship. That's called a TN Visa."

Brace explains that the difficulty sets in when you or your employees don't fit into one of these categories. In this case, you would have to go to the US Department of Labor and get labour certification. This means that you have to demonstrate that there is no one in the US qualified and available to do this job.

Financial matters

One piece of advice Spritzer shares with other would-be exporters is to understand the financial side. She explains that the billing process in Canada can be as simple as shipping and collecting on a 30 day cycle. However, it can be difficult to collect on American bills and possibly deal with banking systems in each country.

Another issue that Canadian exporters may have to deal with is taxes. If you are a Canadian company who takes orders from the US and ships those products over the border you likely don't have too much to worry about. This all changes once the business owner or an employee physically enters the US.

"If a Canadian company actually goes to the States to conduct it's business it needs to review what is known as nexus, which really means having enough contact with the State to be subject to its tax," explains Jeffrey Brown, CPA, Attorney and Practice Leader for KPMG's Mult-State Tax Practice.

Brown further explains that different States will produce different nexus results, as will the number of times you travel back and forth. These differences can sometimes be a surprise to Canadians.

"What happens is that Canadian companies go into the States and don't pay attention to these things and it has a multiplying effect. All of a sudden, a year or two down the line, they may be contacted by the State, who ask for their tax returns."

Registering a business

Brown says that Canadians can eliminate a lot of worry over their tax issues by registering their business in the US.

"What we do, if a Canadian company is going to have warm bodies in the States for any length of time is [have them] consider registering to do business in those particular States. Many States allow you to do it over the Internet, making it very easy."

From a legal perspective Brace points out that the exporter has two choices: to establish a branch office or incorporate a US subsidiary. If they choose to incorporate a US company the first step is to choose a jurisdiction. Delaware is a popular choice because of its flexiblity, says Brace. Once the business is registered, the exporter can get a business license in whatever States they want to have a presence in.

A branch office is simply an arm of the Canadian company, meaning it operates as if it were in Canada. This structure can open you up to risk, says Brown. If a US customer decides to sue you and they win your entire company is responsible. However, if you register a US subsidiary, only that US company can be sued.

Cross border partners

Aside from the accounting and legal aspects of finding a place in the US market, exporters such as Spritzer need to find a way to stand out from everyone else.

"I think the biggest advice I would give is the look for American alliances. You can go ahead and do all of this marketing but if you haven't got the local aspect of what these people are looking for you can spend a lot of money not really knowing what you want to achieve."

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