5 Tips on How to Start an Import Export Business

While the import/export business is complicated and requires a lot of organization and capital, it can be immensely rewarding. With the necessary research and planning, anyone can start their own import/export business.

Brad Nakase, Attorney

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While visiting China, Marie fell in love with all the delicious teas she tried. Eager to share these unique flavors with her compatriots in America, Marie decided to start her own import/export business. Marie contacted a supplier in Beijing, who agreed to give her a certain amount of tea leaves every month for sale in the United States. Using money she raised through a kickstarter campaign, Marie rented warehouse space in her home state of California and registered her business. After months of getting organized legally and financially, Marie was able to have her tea shipped from China to the Port of LA. From there, she delivered her tea to different cafes throughout Los Angeles, making a fine profit.

Do Import/Export Businesses Make a Good Profit?

In general, import/export business bring in significant profits. A business owner can better ensure profitability by researching their industry and creating a solid business plan. Having an idea about the costs associated with the business can help a business owner better understand profit margins and how to price products.

How Do Import/Export Businesses Make Money?

Import/export businesses make a profit by selling products at a higher price than what the owners paid for them. For example, if a business owner bought maple syrup from Canada for five dollars a cup, then he or she would then sell the syrup to customers at 6 or 7 dollars a cup. Their profit would be the one- or two-dollars’ markup.

What Is an Export License?

An export license is a document that the government grants an import/export company. It authorizes the company to conduct specific export transactions. Once the export transaction has been approved by the relevant government agency, an export license may be approved.

What Documents Are Needed to Import Goods?

Depending on the countries involved, there may be different documents needed to import or export goods. In the United States, import licenses and permits are often required. A Customs and Border Protection entry form is always necessary.

What Is an Import/Export Business?

Trade has existed since the dawn of human history, making import/export businesses one of the first entrepreneurial ventures. Think back to the discovery of the Americas, when European explorers brought new plants and animals back to their home countries, creating a demand and establishing trade networks across the Atlantic. Fast forward to today, and we are buying food, clothes, furniture, and almost everything else from around the world. In fact, the world has never been more interconnected, largely thanks to trade.

Imports are defined as a good or service that is brought into a country from another. Exports, meanwhile, are a good or service that is made in one country for sale in other markets. So, for an individual who is starting an import/export business, the nature of their company will depend on whether they are making a product for sale elsewhere or are bringing in foreign goods or services. Sometimes, the answer may be both.

Modern international trade is composed of a complicated system of import/export companies. These businesses manage the sale, distribution, and delivery of products and services from one country to another. If an entrepreneur is curious about starting a company within this industry, he or she should know that there are several types of import/export businesses. An individual could focus their business on importing or solely on exporting. An individual could choose to represent a manufacturer, thereby specializing in a specific industry. Or one could choose to be an import/export agent or merchant, which allows one to function more as a freelance broker.

How to Start an Import/Export Business

For those interested in creating an import/export business, there are many factors to consider and decisions to be made, just as there are for any business. However, for an import/export business, it is especially important to have a background in business, global finance, or international relations. A background in one of these fields can provide an individual with a better understanding of the various challenges that come with buying or selling products and services overseas.

In fact, the issue of compliance is a major hoop for importers and exporters to jump through. Meeting compliances make the business so complex that even experts in business or international finance and relations will find the subject difficult to negotiate. This is because there are a lot of seemingly random considerations to keep in mind at all times.

Example: Ever since her honeymoon in France, Catherine has loved fine wine. Now that she has moved to Paris with her husband, Catherine has decided to open her own import/export business centered on grapes and wine. Catherine has purchased her own vineyard, and from this vineyard she exports wine and grapes to the United States, Canada, and Europe. She also imports grapes from Spain and Portugal, using them to produce her own wine for export.

If an entrepreneur is interested in starting his or her own import/export business, then the following steps will prove helpful.

  1. What Are the Basics of Starting a Business?

The first step in starting an import/export business is to make sure that all the basics are covered. This means that the owner needs to register the business in the state where the business’ headquarters will be located. Depending on the entity one chooses, registration will require varying abouts of legal paperwork and fees. When choosing an entity, one should also think about issues such as taxes and liability. This will affect whether one chooses to make their business a sole proprietorship, general partnership, limited liability company (LLC), or corporation. Another basic element of getting started is registering a domain name so that the company can have a website. This is an important step because of how much business is done online nowadays. One must also think about obtaining any business licenses that will be needed in order to legally operate. All of these administrative and legal steps are essential to getting the business up and running.

Also important to the establishment of an import/export business is the creation of a business plan. A business plan needs to cover several topics related to the operation of a business. One of these topics is how to manage the regulations and rules of the markets to be worked in. For example, one needs to acquire an Alcohol and Tobacco Trade and Tax Bureau permit if one wants to import alcohol and tobacco products into the United States. This permit is free, luckily, but it takes many months to receive. This kind of research into permits and licenses is also necessary for operating in other countries. One needs to know the various back label legal requirements of each country, as well as any insurance needed. These details should be included in a business plan so nothing is forgotten or left out. The business plan is essentially a great way of keeping organized, which is very important for running an import/export company.

One of the most important aspects of starting an import/export business is gaining access to capital, or funds. Depending on the type of import/export business, startup costs may vary. Therefore, it is important to do research on how much capital is needed for any specific import/export scheme. It is recommended to have capital available upfront, before a business gets started. This is to protect the business if any legal action is taken against, and also serves to ensure that one invests in quality products or services. One does not want to compromise early on, because this can lead to legal troubles or a poor reputation. Similarly, it is wise to first test a market, followed by a city, state, and region. This will help prove the business concept before an owner invests a lot of capital.

But how much capital to invest? Again, this will depend on the business. For some companies, in order to break a million dollars, an owner needs to invest seven or eight million. While this seems like a lot of money (and is), this capital also serves to protect the business in the event of sourcing issues or changes in trade rules.

Example: Jane is starting a business where she imports maple syrup from Canada into the United States. She has raised just enough money to get started, meaning she has the capital to make her first shipments and get the business up and running. However, a few months into importing, there is an issue with sourcing. The location where Jane gets her maple syrup has run into production issues. Unfortunately, Jane does not have enough capital to keep the business running while the issue is resolved. The business fails. Had Jane raised enough capital at the beginning to function as a safety net, her business might have survived.

  1. How Does an Entrepreneur Pick a Product to Import or Export?

After deciding to create an import/export business and mastering the basics, the next step is to pick a product or industry that one is passionate about. It is also important that the product has the potential to sell well in international markets. Passion for the business can be related to personal enjoyment, advocacy, or many other reasons.

After identifying a product to import or export, an entrepreneur must find the right market for it. Ultimately, the product will need to attract customers. To figure this out, one must be aware of current trends. It is best to identify products that are just beginning to rise in popularity or show the potential to become so in the future. This allows an entrepreneur to get ahead of the game and become the number one seller in an area that is not yet oversaturated with sellers.

To research trends, one can look at GlobalEDGE’s Market Potential Index. Another resource is available by checking local government websites, including the Department of Commerce International Trade Administration’s Data and Analysis. There are also reports available on the condition of the imports/exports industry which can be found via the Census Bureau Foreign Trade.

Once an entrepreneur settles on a product to sell, their next move should be to proceed slowly and steadily. Before jumping into a business headfirst, one should test the idea. Just because an entrepreneur loves an idea does not mean a market will love the idea. There are a lot of factors that make a product a hit with consumers. These include the connections one has, the packaging of the product, the timing of the business. So many factors mean there is a lot of risk, and no guaranteed results. Therefore, it is best to start small and be cautious.

Example: Theodora has recently started her own import/export business. She imports gems and minerals from Thailand, makes them into jewelry, and sells the jewelry to customers around the world. While Theodora is sure that customers will love her creations, she wants to make sure that they do before she invests a lot of money and time into the business. She first tests the local market, seeing how people react to her jewelry. When she gets consistent positive reactions and sales, Theodora knows that importing from Thailand is a good investment. By starting slowly and cautiously, she is making a wise decision for her business long-term.

  1. How Does an Entrepreneur Source Suppliers?

After an entrepreneur decides on a product that they would like to import or export, they must find a manufacturer or producer who makes the product. This relationship with a supplier can form a strong, long-lasting partnership, so should be taken seriously.

A business owner can identify suppliers by using companies like Alibaba, Thomas Register, and Global Sources. The entrepreneur’s mission is to convince the supplier that there are benefits to entering either the U.S. market or any other market one wants to join. It will be necessary to negotiate the logistics involved in moving the product from a local warehouse or facility to another one. Sometimes, a product may need to be moved across the world. This kind of movement takes a lot of planning and organization.

Depending on the nature of the business, an entrepreneur may be his or her own supplier. For example, someone may make their own honey in South Carolina and export it to Europe.

Example: George is planning to start his own import/export business. He would like to import wine from Portugal to sell to customers in the United States. First, however, George must find a supplier in Portugal who is willing to work with him. To do this, George flies to Portugal and meets with a wine producer in Madeira. The Portuguese wine producer, Nuno, is eager to do business with George because he will provide access to the American market. George and Nuno discuss logistics, specifically how wine will leave the vineyard in Madeira and be shipped to a warehouse in New Jersey. Soon, they are ready to start exporting and importing.

  1. How Does an Entrepreneur Price a Product?

Once an entrepreneur has identified what product they want to import or export and has found a market for it, they must next determine what is a fair price to charge. When it comes to import/export business models, there are two main numbers to consider:

  • Volume of units sold
  • Commission made on the volume sold

It is important to price a product so that the markup on the product (the commission a business owner makes) does not go over what a customer is okay with paying. That said, it is also important not to price the product too low. Otherwise, one will never make a profit.

Generally, importers and exporters will take 10% to 15% markup beyond what the manufacturer charges for the raw product. These numbers can be used as a guide for aspiring importers and exporters.

Example: Sherry is interested in starting her own import/export business. She would like to import coffee beans from the Philippines to sell to American customers. Sherry, however, is not sure what to charge for her beans. The Filipino seller charges five U.S. dollars for a bag of coffee beans. Eager to make money, Sherry charges customers $10 for a bag of coffee beans. However, most comments left on her website read, “Very good coffee, but too expensive! Won’t be buying again.” Sherry realizes that her markup is too high. When she lowers her price to $6 per bag, she starts getting hundreds of more sales.

  1. How Does an Entrepreneur Find Customers?

One of the most important steps in beginning an import/export business is to find customers to sell to. This step is not the same thing as deciding on a market, which involves determining the demand for a specific product. Finding customers means identifying distributors and clients who are happy to take one’s product and sell it on one’s behalf. A business owner should not just plan on having the product shipped to an American port and then stored in a warehouse. There must be a plan for how to get it to consumers.

Having a sleek, quality website is important when one is selling a product. This website allows for one to have digital marketing campaigns and is a way for customers to find the business. Also, in the modern age, many people are using social media sites such as Twitter, Instagram, Facebook, and TikTok. It would be wise for a business owner to take advantage of these marketing platforms to gain the attention and interest of potential customers.

However, when one is first getting started, traditional cold-calling may be the best option. A business owner should get in touch with their local Chamber of Commerce office, embassies, and trade consulates. These organizations may be able to provide a local contact list of distributors who would interested in the product. One may also call distributors, such as stores or restaurants, directly. Having these initial distributors is vital in growing an import/export business.

Example: Carlo has started his own import business, through which he brings spices from India to customers in the United States. However, when he receives his first shipment of pepper and paprika, he does not know how to sell it. He even considers setting up a stall on the street! Then, Carlo decides to contact the local Whole Foods to see if they are interested in stocking his spices. To his joy, they agree, and Carlo receives a trial run in the store.

  1. How Does an Entrepreneur Master the Logistics of an Import/Export Business?

The most difficult part of starting an import/export business is managing the logistics of taking a foreign product and selling it somewhere across the globe. It is a long journey from Thailand to New York, or from London to L.A. What steps are involved in that journey?

A lot of organization is required to manage a supply chain. For an import/export business, the customer is different than the client, which in turn is different than the consumer. Managing the relationships between these parties requires a lot of coordination and patience.

A business owner may consider hiring a global freight forwarder, who on behalf of the owner can reach out to shipping lines, such as Maersk. Having a transport agent to manage the movement of cargo is a good idea for import/export businesses. This arrangement saves a lot of stress regarding moving products from their source to a warehouse, which is sometimes located across the world. A business owner will typically give a freight forwarder their business information and product intentions. In return, the forwarder will set up shipping agreements, insurance, as well as managing the licenses, tariffs, permits, and quotas involved in working with another country.

Having such an arrangement with a global freight forwarder is therefore an excellent easy to reduce the stress and hassle of managing international trade on one’s own.

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