In April HMRC published figures revealing the UK’s ‘Importer and Exporter Population’ for 2018, which shows the number of businesses trading goods abroad. According to the data, 306,000 businesses trade internationally each year, of which 148,000 are exclusively importers, 60,000 are exclusively exporters, while the remainder do both.
While these figures reveal a burgeoning community of international traders, the government is keen to get the UK exporting more. For many, the prospect can be a daunting one, with many considerations needing to be taken into account and opportunities suitably measured against risk.
Exporting carries a number of risks, but also many rewards in opening up new markets. It significantly increases the number of potential clients a business can sell to, but without any prior experience of exporting it can be difficult to know where to begin.
Firstly, it is important to have a clear strategy. This should take the form of a proper business plan, which should include a cash flow forecast. This will need to take account of higher working capital requirements, as exporting will often result in a longer cash flow cycle. The business plan should set out which countries the business wishes to target for its exports and why the product or service will be suitable for that market.
Exporting works particularly well if you have a product that you sell, which can be exported to a country that is unable to make that product internally, or if you can produce the product cheaper in the UK than in the country being exported to. It can also be an avenue to explore if your product is branded or can be sold at a premium as being British-made. Across much of the world, British-made goods are held in high esteem, with the ‘British’ stamp effectively acting as a revered brand.
At Crowe, we have helped many businesses to produce strategies and forecasts at early stages of export planning. This has helped our clients to avoid unnecessary and additional costs that may be incurred at a later stage.
Are there situations or markets that would result in a local demand for your product?
Are there any restrictions on the import of your product to that country which will restrict your market, or prevent you from importing your goods?
*Most banks for instance will have a list of countries that they will not allow you to trade with.
Foreign exchange: Fluctuating currency rates can easily impact on profit margins if they move against you. Hedging against currency risk can take many forms, some of which are highly complex. Banks, as well as specialist foreign exchange bureaus will be able to provide advice on this. Usually it is better to go for the simplest form of hedging and it is important that you understand the product being offered and its cost. If you are also buying from overseas then the best form of hedging against currency risk is a natural hedge where you buy and sell in the same currency.
Selling strategy: How you will sell is an important consideration and it can be achieved in many ways; direct sales from the UK, use of an agent or representative, using a distributor or commission representative or by setting up a branch or entity overseas. Each route will have its own tax implications, which a qualified accountant will be able to advise on.
The business plan should cover the short medium and long term so that an appropriate structure can be put in place for both commercial and tax planning purposes. However, this should aim to set up the business for the best commercial outcome rather than around a tax structure that does not work commercially. Involving your specialist advisors at an early stage should ensure things are set up properly from the outset, which will potentially save a lot of time and money further down the line.
You should also consult your specialist advisors about VAT and tariffs before agreeing a price with your customer so that you can be sure that all the costs are included and your profit margin will be what you expect.
Recruiting and investing in the right people will have a significant impact on how successful the business will be. The most successful businesses often invest in local sales people who not only speak the language but also understand local customs and ways of doing business. They can also be invaluable in understanding local laws and regulations which if not properly considered can cause problems.
Once you are up and running getting your goods to their destination can seem very complicated due to the paperwork required. However, help is on hand from freight forwarders and local chambers of commerce, along with banks and specialist advisors who can help with the paperwork required.
Once you have exported you need to ensure you are paid. Receiving the cash is likely to take much longer than if you sell to a UK company due to delivery times and delays at customs. Therefore, you will need to consider how you fund your working capital requirements.
A typical process could include the following before any money is received:
*The rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts.
There is plenty of help available to companies researching overseas markets and information can be obtained from organisations such as the Department for International Trade (DIT), Open to Export along with most banks and of course online research and local guides.
As well as providing information on markets, many organisations will also run trade missions to countries of interest. This is where government officials and business leaders from one country travel to another to promote trade between the two. Trade missions are usually organised by governments or banks and are used to explore potential international business opportunities. They can also help create networks of buyers, agents, suppliers and key government contacts in a specific country or region. Often these may be part funded by the organisation running the mission.
With the right advice exporting is not as daunting as it first seems and will significantly increase your customer base. The key, as with any business, is careful planning and consideration of the above points before you start out.