How Does Export Work?
Most people are willing to sell outside of the US but often don’t know how international business works. Probably the hardest part for small businesses to understand is the payment process. The problem is, foreign buyers are often willing to make large orders but they want credit terms.
The solution is the International letter of credit which are secure payment terms where a bank is an intermediary. A letter of credit is confirmed by the American exporter’s bank, and this takes the risk out of the payment process for both parties.
The following are 6 financial tactics to get you ready to become an expert in your export business.
A Good Product or Service
Yes, you can export a product or a service. And no, you don’t have to be a large producer to export. You can export a product even if you have less than 10 employees. However, you need to start with a product that sells. It doesn’t have to be to every country, but just somewhere.
What types of products can I sell? Look for trends or a special distinct niche. Cultivate a knack for knowing what people want in a certain industry. And then work to meet that need. Select a specific number of products you want to promote. Generally speaking, a good number can be anywhere from one to 30. Any more than that can make things complicated.
You want to export products that appeal to the area you plan to sell in. Each product you sell needs to be researched to see if it fits the market. A good idea is to take a small sampling and network with companies to see whether there is a market. The things you need to know are:
- Does your product meet government requirements?
- Do you have export data sheets explaining your product fabrication in the language of the country you want to sell in?
Track Your Financials
Whether you run your business from your garage, home or office, you need to have your financials in order. You can’t get to the end of your year and find out where you are when it comes to profit and loss. You need to prepare monthly income balance sheets – as the year progresses. This allows your lender to see how you plan to finance trade deals.
Even if you haven’t made those global sales yet, you still need to keep detailed financials as this will be a determining factor to your getting a loan. You are spending money, you have expenses and you are going to need working capital. When you are ready for a loan, your bank needs to know you are a good credit prospect and will want to see details of your financials.
Research Your Pricing and Keep It Competitive
When exporting you need to know that your product or service is competitively priced. You must think of these factors when thinking of exporting.
- Your Product Uniqueness: Is your product a trending one? Do you have fewer competitors? You can price your items higher if this is the case.
- Product Quality: Is your product high quality or low? Price your product accordingly.
- Your Cost: Determine your cost and if it’s on the high end you will need to keep your profit line marginal.
- Customer: Did you contact your customer or did he contact you? This will also influence your price line.
Identify The Countries You Want to Market To
When trying to export you need to determine the perfect market for your product. Is it a product that sells to developing countries, or those that are already developed? Write this out in your business plan. This is what a bank will want to know when you go in seeking a loan.
Check Government Policy
You need to check to see what the government policies for importing your product are. You must determine what the $ amount is for importing in that country and whether the product will be held up in customs or not.
Think about Developing Local Partners to Expand Your Market
One of the biggest challenges when thinking about exporting is in thinking of ways to expand your market overseas. Sometimes opening a facility or office overseas is not the answer. You may prefer to introduce a new product through a local supplier. Figure out if any of these are available in your market and be sure to include them in the business plan you present to the lender.
- Distribution Partners in an associated country.
- Sales agents in the country of choice
- Joint venture possibilities
- Branch office in a new country