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Importing can be a great way to start or expand a small business. But as with any venture, it's important that entrepreneurs protect themselves from foreign currency fluctuation risk and ensure their business models can support their long-term strategic goals.
The following steps can help business owners ensure due diligence when launching an import operation.
Business owners should research what's currently available in the market to see if the imported product is worth the investment. "Importers must analyze the landed cost (final cost) of the product to determine if they should actually commence importing it," says Larry Delson, owner of Delson International, an import/export consulting firm in New York, and adjunct associate professor at New York University's School of Continuing and Professional Studies.
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This step can be relatively simple because it requires research in one's own marketplace.
"The U.S. is very open to imported products, but you must make sure it is not from countries that are under any sanctions by the U.S. Department of State," says Vipon Kumar, director of sourcing at Acme-Hardesty / Jacob Stern & Sons, Inc., a Philadelphia-based global sourcing, and import and export business. A freight service or customs broker can often help with this step.
Along with identifying a commercial need, business owners need to calculate the potential profit margin by cost analysis, Kumar says. This means calculating the landed cost of the product: the vendor price, freight, insurance, duties, taxes, warehousing and the cost of money borrowed to support the purchase. "Once you have those calculations, compare the landed cost with the comparable products being sold in the market to define your profit margin," he says. "Based on the comparison, one can decide whether to import or not."
Import business owners should evaluate the efficacy and trustworthiness of any overseas manufacturer before agreeing to an international shipping deal. A face-to-face meeting, and background and credit checks can help. If possible, talk to other customers and industry representatives who may know the firm.
Large importing deals can tie up resources for weeks between the purchase and sale of the goods, says Ian Varley, managing director of Bibby Financial Services, an Atlanta-based provider of funding services for domestic and export account receivables. To keep a steady cash flow and manage financial risk, many import businesses rely on trade loans or import financing to support these deals. Some lenders will also offer assistance in vetting suppliers and goods to ensure the deal is a success. Relying on a trusted online foreign exchange service can help, as well, by providing convenient exchange rate calculation and bank-to-bank money transfers that are delivered in an exporter's domestic currency.
Business owners should meet with the vendor to confirm a price and define quality expectations for the imported product and packaging, Kumar says. These details should be included in the sales agreement. To further ensure the product will meet specifications when it arrives, importers should also consider appointing a third-party quality surveyor at their own cost to review the goods before they are shipped.
By taking these steps, an entrepreneur can make a smoother transition into the role of international importer.
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