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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 marketing plan?

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.

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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.

Start-Up Capital

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.

Business Name/Logo

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.

Business License

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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).

Seller's Permit

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.

Financial Records

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.

Accounting

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 machine

• Rent, utilities, office furniture

• Inventory

• Business checking account

• Salaries and other staff expenses

• Travel

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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.

The Office

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.

Employees

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.

Business Insurance

Other business insurance that you should consider on a caseby-case basis are liability, disability, an FCIA umbrella policy, and a customs bond.

Support Team

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.

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THE 10 COMMANDMENTS OF STARTING AN OVERSEAS BUSINESS

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 business.

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.

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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 time.

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.

(Continued)

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How to Begin the Business Plan

Stop everything and begin writing. The first draft of your plan will contain about 80

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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.

7. Rewrite.

8. Implement.

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

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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 prescribed form.

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 experience dictates.

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.

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