importing and exporting related activities of an organization
Article Assignments: This assignment is a review/analysis and critique of an article. The article chosen may be selected from the two most recent issues of magazines selected. The assignments are to include an one paragraph summary of the article and at least a paragraph analyzing how the issues of the article relate to the material of the day. Attention: The length of the critique has to be at least the same length as the summary.
A foul bill indicates an exception-the carrier noted some damage on the bill of lading.
Discuss the problem with your carrier or freight forwarder to make sure you have an
opportunity to exchange any damaged goods and obtain a “clean” bill.
The next chapter explains, from A to Z, how to set up and build your import/export
company. It discusses how to decide on a name, how to go about obtaining start-up funds,
and, most important, how to think through and write a business plan.
“HOW DO I START MY OWN IMPORT/EXPORT BUSINESS?”
That question is universal. The language might be different, but in any country in the
world you will hear the same words.
The answer depends on these questions: Have you done your homework? What is your
product? Do you have contacts? Who will buy your product? Is it profitable? Do you have a
By incorporating what you’ve learned about the fundamentals of import/export in
Chapters 2 through 5 with the methods explained in this chapter, you should be ready to
start your own import/export business.
The first part of this chapter describes the mechanics of start-up. The second part shows
you how to develop a business plan so that you can raise capital and grow.
THE MECHANICS OF START-UP
The process for starting a small business is the same in any country in the world. You need
capital, know-how, and management skills, but you do not need a fancy college degree.
Any good manager can operate a business.
In the initial stages of starting your own import/export business, the funds needed to
support expenses will most likely come from your own pocket. It is possible to begin an
import/export business with as little as $1000 a year.
Sources of Financial Capital
When your personal finances will not sustain the expenses of start-up until you reach
breakeven and begin to show a profit, you must look for outside financial assistance.
Unfortunately, banks are seldom the source of start-up capital. Why? Banks do not take
risks. They generally expect a track record and collateral. Catch-22? Where, then, can you
go for financing? Most often, the best sources are relatives and/or friends-people who
know you and believe in you. Even they may want a description of your intended business,
so from the beginning you should develop a written business plan. You may want to skip to
the second part of this chapter immediately to learn how to write that plan. You can return
to this section when you complete your business plan.
Think of a name for your business. The company’s name should reflect what your business
does and be easily advertised by letter, by fax, or over the Internet. For example, you can
easily visualize the nature of a business called “Southeast U.S.A. Furniture Import.” It
gives a more accurate picture of that company than would “Kim Yee and Son.” If the name
you choose does not contain the owner’s surname, you will probably need to file a request
to use a fictitious name or DBA (doing business as). If the name of your business includes
your last name, you may not be required to file for approval. The cost of registering your
fictitious name is about $20 in most countries. There is also a requirement to publish that
name in a newspaper for several days. That cost is usually $30 to $40.
The Business Organization
Next, decide how your business will be organized. The three common legal forms are sole
proprietorship, partnership, or corporation. Most start-up import/export businesses begin as
proprietorships or partnerships. They find little need to take on the extra paperwork and
reporting requirements of a corporation in the beginning. Select the appropriate form
according to the intent, complexity, tax implications, and liability requirements of the
business. If in doubt, consult a lawyer. Partnership agreements and incorporation papers
can be expensive, ranging from a few hundred dollars to several thousand.
Some countries require licenses to do international trade. In the United States, however,
there is no regulatory body that requires you to show special qualifications in order to hold
yourself out as an importer or exporter. However, as with any other business, you will have
to meet local and state business licensing requirements. It is possible that the foreign
country you are doing business in will require a license as well (see Chapter 7).
Most nations and states have a sales tax. In order to ensure collection, these jurisdictions
often require a seller’s permit. Permits are usually state controlled, so as you begin your
own import/export business you should investigate your local laws.
Open a separate bank account in the name of your business. Keep accurate records, and
pass all business income and expenses through your business account. Do not pay personal
expenses from this account or otherwise mix personal income and expenses with business
income and expenses. You may list personal “capital contributions” and “capital
withdrawals,” but keep these infrequent and in reasonably large sums-don’t take out money
in dribbles and drops.
From the beginning, learn to keep a simple set of books to feed into your Internal Revenue
Service (IRS) forms at tax time. Keep a careful record (receipts) of all business expenses,
and invoice all work on your letterhead paper. At a minimum, you will need a general
ledger organized into four sections: expenses, income, receivables (sales invoiced), and
payables (bills received). For example, your expenses, like the cost of your trip to Hong
Kong or Paris, should be listed chronologically, by month, down the left margin of the
expense section. Across the page, the categories should correspond to the tax categories.
Check current IRS publications.
What kinds of expenses should you expect in your own import/export business? Here
are the most common.
• Stationery and business cards
• Telephone, answering machine, adding machine, copier, typewriter, facsimile, telex
• Rent, utilities, office furniture
• Business checking account
• Salaries and other staff expenses
Table 6-1 shows an example of the categories listed in the expense section of your
general ledger. The other sections of your ledger should be set up similarly.
You can set up an office in your home or elsewhere. The location and outfitting will be
determined by the volume and complexity of your firm. In the beginning, you may do
business by letter and telex, and hire part-time employees occasionally. However, as your
import/export business grows, you may need warehouse space for inventory and a larger
office for a growing staff.
As your office and trading staff grows, the complexity of paperwork and record keeping
will also grow. Prior to hiring anyone, you must obtain an employer ID number from the
IRS, and consider worker’s compensation and benefits insurance.
Other business insurance that you should consider on a caseby-case basis are liability,
disability, an FCIA umbrella policy, and a customs bond.
Early in the establishment of your import/export business, you should develop a
relationship with your international support team. After a brief period of shopping around,
settle on a longterm relationship with an international banker, a freight forwarder, a
customs house broker, an international accountant, and an international attorney. Also,
consider contacting the Small Business Administration (SBA) if you run into problems.
Members of the SBA’s Service Corps of Retired Executives (SCORE) are often available to
provide free advice.
THE 10 COMMANDMENTS OF STARTING AN
1. Limit the primary participants to people who not only can agree and contribute
directly but also are experienced in some form of international business.
2. Define your import/export market in terms of what is to be bought, precisely by
whom, and why.
3. Concentrate all available resources on two or three products or objectives within a
given time period.
4. Obtain the best information through your own industry.
5. Write down your business plan and work from it.
6. “Walk on two legs.” Pick a good freight forwarder or customs house broker to walk
alongside your banker.
7. Translate your literature into the language of each country in which you will do
8. Use the services of the Departments of Commerce and Treasury.
9. Limit the effects of your inevitable mistakes by starting slowly.
10. Communicate frequently and well with your international contacts, and visit the
overseas markets and manufacturers.
THE BUSINESS PLAN
In the beginning you may have only a notion of your plan tucked away in your head. As the
concept of your business grows, it will be necessary to formalize your plan and stick to it.
Putting out brushfires in order to maintain marginal survival is hardly a wise use of your
The underlying concept of a business plan is to write out your thoughts. By raising, then
systematically answering, basic operational questions, you force self-criticism. Once the
plan is on paper, others can read it and you can invite their opinions. Don’t let your ego get
in your way. Ask for constructive criticism from the most experienced people you can find.
Often it is better to seek out strangers, because friends and relatives tend to shield you from
hurt. Explain to your readers that you want to hear both the bad news and the good news.
The more eyes that see the plan, the more likely you will (1) identify hazards while you still
can act or avoid them, and (2) spot opportunities while you can easily act to maximize them.
“The plan is nothing; planning is everything.”
-President (General) Dwight Eisenhower
A business plan can be as brief as 10 pages and as long as 50. The average plan runs
about 20 pages. Table 6-2 suggests an outline format for your business plan.
How to Begin the Business Plan
Stop everything and begin writing. The first draft of your plan will contain about 80
percent of the final version and can be finished in less than two days. One measure of the
success of the process is the amount of pain it causes you. By looking at your business as
an onlooker would, you may find that some of your vision-a pet project, for instance-may
have to be abandoned. The process involves eight major steps:
1. Define long-term objectives.
2. State short-term goals.
3. Set marketing strategies.
4. Analyze available resources (personnel, material, etc.).
5. Assemble financial data.
6. Review for realism.
Defining Long-Term Objectives. Start with the objectives of your import/export
business. Think ahead. What do you want the business to be like in 3 years? 5 years? 20
years? How big a business do you want?
Stating Short-Term Goals. Define your import/export business in terms of sales volume
and assets. Be precise; state goals in measurable units of time and dollars.
Setting Marketing Strategies. If you have done the homework tasks outlined in Chapter
2 and applied the marketing concepts offered in Chapter 3, this part of the business plan
should be simple.
If not, go back and review the marketing section of Chapter 3, because nothing will
happen with your business until you make a sale. If sales aren’t made, projections and other
plans fall apart. Profitable sales support the business, so be prepared to spend 75 percent of
your planning time on marketing efforts. Ultimately, the best marketing information comes
through your own industry, here or overseas. Talk to those with experience. Talk to
manufacturers as well as other importers and exporters. Don’t overlook the data that can be
found in libraries and over the Internet.
Make your market plan precise. Describe your competitive advantage. Outline your
geographical and product-line priorities. Write down your sales goals. List your alternatives
for market penetration. Will you sell direct or through agents? What is your advertising
budget? Travel in an import/export business is a must. What is your travel budget? How
much will it cost to expand your markets? What will be the cost of communications? Don’t
minimize your cost projections. It is not unusual to underestimate expenses. They are often
three times more than you think.
Analyzing Available Resources. Now for the pain. You must ask yourself whether you
have the resources to make the plan work. Take a management inventory. Do you have the
skills to market your products? Do you need administrative or accounting skills? Will you
need warehouse space? Will you need translators? How much cash will you need?
Assembling Financial Data. After all the dreaming and reality testing of the first four
steps, you must now express the plan in terms of cash flow, profit and loss projections, and
balance sheets. Figure 6-1 (pages 140-141) is a pro forma sales projection, Figure 6-2 (pages
142-143) is a pro forma income (profit/loss) statement, Figure 6-3 (pages 144-145) is a pro
forma balance sheet, and Figure 6-4 (pages 146-147) is a pro forma cash flow statement.
(All are three-year summaries, with detail by month for the first year and detail by quarter
for the second and third years.) Pro forma here means estimating information in advance in a
The cash flow and the profit and loss projections serve double duty. They quantify the
sales and operating goals, including use of personnel and other resources expressed in
dollars and time. As a guide to the future, they can serve as control documents and as a
measure of progress toward goals. The balance sheet shows what your business owns, what
it owes, and how those assets and liabilities are distributed.
Reviewing for Realism. Your plan must not set contradictory goals. You cannot expand
the introduction of goose liver from China at the same time that you are getting out of
animal products and into irrigation machinery. Look at your plan and ask, “Does this make
good business sense?”
Rewriting. Now that the first draft is complete, let at least 10 experienced people look at
it. Ask them to be critical and to tell you the truth. Let them know up front that you have a
lot of ego in this project, but that because you want to be a success, you need their criticism,
no matter how much it hurts.
Implementation. Your business plan provides a road map, but the acid test is whether it
will work. At times you may have to detour to get where you are going, so don’t put the map
on the shelf and forget about it. Use it as an operating document. Review it and revise it as
Now you’re ready to go. You’ve done your homework and written your business plan. If
you’ve gotten this far, you have the style and determination to make it work.
By now, you have written your first letter and made your first contact. As an importer
you’ve asked for literature and samples, or as an exporter you’ve sent them. You want early
orders, and if you have done your homework they should start rolling in, but be patient.
Everything takes a little longer in international business.
As you have learned in the previous four chapters, most of the fundamentals of
international trade are common to both importing and exporting, but some major elements
are specific to one or the other. Part 2 of the book explains those things that are unique to
exporting or to importing, such as government support systems, information systems, tax
considerations, tariffs, and private sector support organizations.