Every morning, I pick-up my iPhone, check my emails, then go online for the latest news. One recent morning, I woke up to an email from Birchbox, a beauty sample subscription company. The email was informing me that Birchbox was putting its Canadian operations on hold and would refund my remaining subscription. The closure was due to the current US-Canadian exchange rate and high shipping costs. Birchbox has made the decision to stop servicing its Canadian customers – a market that Birchbox made a significant investment in time and money to grow.
That same week I read "71-cent dollar puts softwood back in U.S. crosshairs" by Barrie McKenna. In summary, the demand for new houses in the United States has increased the demand for forest products. This coupled with the premium (about 30%) on the US dollar means Canadian lumber producers are receiving a significant margin when selling into the United States. The increased supply of Canadian lumber and the higher margins Canadian producers are making has drawn the attention of US lumber producers at a time when a key trade agreement with the US on the cross border sales of forest products has expired. The attention and complaints of US suppliers are expected to have a negative impact on the renegotiation of the treaty.
At Crowe Mackay, a number of our clients in a variety of industries are capitalizing on the premium to be made from the Canadian-US exchange by concentrating on marketing and selling to US customers. As an accountant, I have three observations to make:
1. The current US-Canadian exchange rate is an opportunity for Canadian businesses.
A Canadian company can make a significant premium just by selling to US customers. If your business is not currently capitalizing on US sales it should consider opportunities to do so.
2. While there are opportunities to sell to US customers, be careful to not concentrate all your company's efforts for growth in the United States.
At some point the US-Canadian exchange will swing in the other direction, and as a business you could have to make the same decision as Birchbox who decided to cut their Canadian operations as they are no longer profitable. If you have to make this decision the business needs to be in a position to survive.
3. There can be significant tax, legal and other implications for a business selling products and services in the United States.
For example, depending on how products and services are sold into the US, the company could be required to file foreign reporting forms with the Canada Revenue Agency (CRA). A Canadian company operating in the US should have the information its needs to make smart decisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.