(1) an international banker, (2) a freight forwarder, (3) a customs house broker, (4) an international accountant, and (5) 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 Overseas Business
1. Limit the primary participants to people who not only can collaborate 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(s) of the country(ies) 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.
The underlying concept of a business plan is to write out your thoughts. By raising and then systematically answering basic operational questions, you force self-criticism. Once it’s 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 ask strangers because friends and relatives tend to want 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. On aver- age, they run about 20 pages. Every outline is usually about the same.
Figure 6.1 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 con- tain about 80 percent of the finished draft 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. Often, the process is done in eight 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
Figure 6.1 Business Plan Outline
Cover Sheet:Name, principals, address, etc.
International Costumes, Inc.
Business Plan Fiscal Year 20XX Statement of Purpose:
Table of Contents:(corresponds to each exhibit) A. Executive summary
B. Description of the business C. Product-line plan
D. Sales and marketing plan E. Operations plan
F. Organization plan G. Financial plan H. Supporting documents I. Summary
Exhibits:
Exhibit A Executive Summary
1. Written last, summarizes in global terms the entire plan;
succinct expression of long- and short-term goals Exhibit B Description of the Business
1. Long- and short-term goals Financial
Nonfinancial 2. Strategies
Product line Sales and marketing Product development Operations
Organizational Financial 3. Location
Reasons
Exhibit C Product-Line Plan 1. Product line and products
Description
(Continued)
Figure 6.1 (Continued)
Price Costs
Historical volume Future expectations
2. Competition’s product line and product position Pricing
Advertising and promotion Exhibit D Sales and Marketing Plan
1. Person(s) responsible for generating product line and product sales
2. Competition’s approach to sales and marketing Exhibit E Operations Plan
1. Production and operations function Production scheduling
Inventory (product line and product) 2. Capital expenditures (if required) Exhibit F Organization Plan
1. Organization’ s structure Organization chart Résumés of key personnel Managerial style Exhibit G Financial Plan
1. Summary of operating and financial schedules 2. Schedules*
Capital equipment Balance sheet
Cash flow (breakeven analysis) Income projections
Pro forma cash flow
Historical financial reports for existing business (Balance sheets for past three years; income statements for past three years; tax returns)
Exhibit H Supporting Documents 1. P ersonal résumés
2. Cost of living budget 3. Letters of reference 4. Copies of leases
5. Anything else of relevance to the plan Exhibit I Summary
*See Figures 6-2 to 6-5.
Defining Long-Term Objectives
Start with the objectives of your import /export business. Think ahead.
What do I want the business to be like in three years? Five years?
Twenty 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 them in measurable units of time and dollars.
Setting Marketing Strategies
If you have done your homework as explained 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 experi- ence. Talk to manufacturers as well as other importers/exporters. Don’t overlook the data that can be found in libraries and over the Internet.
Make your market plan precise. Describe your competitive advan- tage. 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 the advertising budget? Travel in an import/export business is a must. What is the travel budget? How much will it cost to expand your markets? What will be the cost of com- munications? Don’t minimize your cost projections. It is not unusual to underestimate expenses. They are often three times more than you think they will be.
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 account- ing 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 them in terms of cash flow, profit and loss projections, and balance sheets. Figure 6.2 shows a pro forma sales projection (three-year summary, detailed by month for the first year; detailed by quarter for the second and third years). Figure 6.3 is a pro forma income (profit and loss) statement (detailed by month for the first year;
detailed by quarter for the second and third years), Figure 6.4 is a pro forma balance sheet, and Figure 6.5 is a pro forma cash flow statement (detailed by month for first year; detailed by quarter for the second and third years). This use ofpro formahere 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 person- nel and other resources expressed in dollars and time. As a guide to the future, they can be used as control documents and measure 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. A coherent plan fits together. You cannot be expanding the introduction of goose liver from China at the same time you are getting out of animal products and into irrigation machinery. Look at your plan as a whole and ask, “Does this make good business sense?”
Rewrite
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
Figure 6.2 Pro Forma Sales Projections
Pro Forma Sales (Shipments) Projections Fiscal Y ear 20xx
Product Line(s)
Product(s) Ja n Feb Marc h April May J une Ju ly Au g Sept Oct Nov Dec Y ear A. Product Line A
1. Product 1 Shipments (Units)
Av g. Price/Unit ___________________________________________________________________________________
Gross Sales $ $ $ $ $ $ $ $ $ $ $ $ $
2. Product 2 3. Product 3
|
|
| n. Product N
Product Line A— ___________________________________________________________________________________
Gross Sales $ $ $ $ $ $ $ $ $ $ $ $ $
___________________________________________________________________________________
C. Product Line C
|
|
| N. Product Line N
T otal Gross Sales _______________________________________________________________________________________
$ $ $ $ $ $ $ $ $ $ $ $ $
_______________________________________________________________________________________
_______________________________________________________________________________________
157
Figure 6.3 Pro Forma Income Statement (Profit and Loss)
Pro Forma Income Statement Fiscal Year 20xx
Jan Feb March April May June July Aug Sept Oct Nov Dec Year Gross Sales
less: Discounts,
allowances, etc. ___________________________________________________________________________________
Net Sales ___________________________________________________________________________________
less: Variable costs ___________________________________________________________________________________
Manufacturing:
Material ___________________________________________________________________________________
Labor ___________________________________________________________________________________
Variable overhead ___________________________________________________________________________________
Other ___________________________________________________________________________________
Variable costs ___________________________________________________________________________________
(manufacturing) Operating:
Commissions ___________________________________________________________________________________
Other ___________________________________________________________________________________
Variable costs ___________________________________________________________________________________
(operating)
Variable costs ___________________________________________________________________________________
(total)
Contribution ___________________________________________________________________________________
Percent of net sales (%)
Engineering ___________________________________________________________________________________
Selling ___________________________________________________________________________________
General and ___________________________________________________________________________________
Administrative
Financial ___________________________________________________________________________________
Fixed costs (total) ___________________________________________________________________________________
Profit before taxes ___________________________________________________________________________________
less: Taxes ___________________________________________________________________________________
Net income ___________________________________________________________________________________
159
Figure 6.4 Pro Forma Balance Sheet
Pro Forma Balance Sheet Actual
Fiscal Y ear 20xx Dec J an Fe b March Apri l May J une Ju ly Au g Sept Oct Nov Dec A. Assets Employed
1.Current Assets
Cash ___________________________________________________________________________________
Accounts receivable (net) ___________________________________________________________________________________
Inventory ___________________________________________________________________________________
Prepaids ___________________________________________________________________________________
Other ___________________________________________________________________________________
Subtotal ___________________________________________________________________________________
2.Current Liabilitie s (excluding debt)
Accounts payable ___________________________________________________________________________________
Accrued liabilities ___________________________________________________________________________________
T axes payable ___________________________________________________________________________________
Other ___________________________________________________________________________________
Subtotal ___________________________________________________________________________________
W orking capital (1 – 2) ___________________________________________________________________________________
3.Property, Plant, and Equipment
Land ___________________________________________________________________________________
Building ___________________________________________________________________________________
depreciation
Subtotal ___________________________________________________________________________________
4. Other Assets
Investments ___________________________________________________________________________________
Other ___________________________________________________________________________________
Subtotal ___________________________________________________________________________________
Assets Employed ___________________________________________________________________________________
B. Capital Structure 1. Debt
Short-term Notes ___________________________________________________________________________________
Long-term (current ___________________________________________________________________________________
portion)
Long-term Debt ___________________________________________________________________________________
Other ___________________________________________________________________________________
Subtotal ___________________________________________________________________________________
2. Deferred Taxes ___________________________________________________________________________________
3.Shareholders Equity ___________________________________________________________________________________
Paid-in Capital ___________________________________________________________________________________
Retained Earnings ___________________________________________________________________________________
Subtotal ___________________________________________________________________________________
Capital Structure ___________________________________________________________________________________
161
Figure 6.5 Pro Forma Cash Flow Statement
Pro Forma Cash Flow Statement (Operational) Fiscal Year 20xx
Jan Feb March April May June July Aug Sept Oct Nov Dec Year
Cash Receipts
Collection of accounts
receivable ___________________________________________________________________________________
Sale of assets ___________________________________________________________________________________
Borrowings ___________________________________________________________________________________
Equity financing ___________________________________________________________________________________
Other ___________________________________________________________________________________
Cash receipts ___________________________________________________________________________________
Cash Expenditures
Material ___________________________________________________________________________________
Freight ___________________________________________________________________________________
Wages and salaries ___________________________________________________________________________________
Commissions ___________________________________________________________________________________
Fringe benefits ___________________________________________________________________________________
Manufacturing expenses ___________________________________________________________________________________
Selling expenses ___________________________________________________________________________________
General and administrative ___________________________________________________________________________________
expenses
Financial expenses ___________________________________________________________________________________
Subtotal ___________________________________________________________________________________
Dividends ___________________________________________________________________________________
Other ___________________________________________________________________________________
Cash expenditures ___________________________________________________________________________________
Cash flows ___________________________________________________________________________________
Cumulative cash flows ___________________________________________________________________________________
163
front that you have a lot of ego in this project, but that because you want to be a success, you want 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. Like a map, 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 con- tact. As an importer, you’ve asked for literature and samples; 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 than you would expect or would like in international business.
As you have learned in the previous five chapters, most of the funda- mentals of international trade are common to both importing and exporting, but some major elements are specific to one or the other. The next part of the book explains those things that are unique to exporting or to importing, such as government support systems, information sys- tems, tax considerations, tariffs, and private sector support organizations.