First in our series on ‘The True Cost of Exporting’, Gavan Ord explores how to become export ready, along with the costs incurred along the way.
There are potentially tens of thousands of small businesses with a product or service capable of export that are not exporting and should consider exporting. In reviewing whether your business is ready to begin exporting, you should consider a number of important factors. One important factor is to assess whether you are in the financial position to actually pursue an export strategy.
Assessing your financial position
Assessing your financial position requires you to prepare and interpret financial statements—profit and loss, balance sheet and cash flow statements—and budgets, including cash flow forecasts. These base documents will allow you to assess your current financial position as well as your projected future financial position, with and without exporting. If you don’t already prepare and interpret such documents, your accountant will be able to help.
Knowing your financial position is vitally important before you put together an export plan. Your financial position will determine how much effort you can put into exporting, whether you need to move resources from another area, or seek additional finance. While your financial position should not dictate your plan for becoming export ready, it should be a vital consideration to assess the resources, time, skills and commitment you can devote to building an export market over a sustained period, typically between 12 to 18 months.
Export plan
After you have matched your exporting ambitions with the reality of your financial position, you need to develop an export plan as part of your overall business plan. The export plan should also set objectives against which you can measure performance.
The first step is to conduct market research on your current target export markets. Research will vary in cost, time and complexity, depending on the product or service, the customers’ needs, the country and the information and experience already available to you. Although you can do much of this research in Australia, you will still need to visit the market itself. Once you start to visit these markets, the costs will begin to rise as you confirm and fine-tune your research—one visit is never enough.
Cost of preparation
In preparing to become export ready, there are a number of other potential outgoings for which you will need to budget. These include the cost of participating in trade events, developing promotional material for different markets, developing a corporate and product profile, interpreting and translating services, product customisation, due diligence on potential partners, legal fees and so on.
It is important that your financial projections reflect the full cost of establishing and operating in a market, including your time and your employees’ time, so you can make an informed decision about cost.
Distribution channels
Once you have identified a target market, you need to consider how best to get your product or service into that market. Distribution channels include direct sales, licensing, agents, distributors, and so forth. Each of these distribution channels has different costs, benefits and risks attached to them, therefore as part of identifying the preferred distribution channel, you should do a cost-benefit analysis of the various options.
If you decide to work with a partner, part of your due diligence should include reviewing whether the potential partner has the resources to perform the tasks that you require.
Pricing
It is important to determine what price to charge for your product or service in a new market. The cost to you of getting the product to market, including the cost of any modifications, and the margin you want to achieve are not the only pricing considerations, but they will be the most significant considerations over the medium to long term.
While introductory prices are a tool to create interest and to build market share, you should test how successful your product or service will be if it priced appropriately, as this will be the price that you will want to sell at over the long run. Pricing should also take into account the risks of currency fluctuation, commissions and retainers payable to an agent and transportation cost.
You should also forecast your sales volume for given prices.
Before finalising your price, put your preferred price to whomever you are selling to and be prepared to bargain; do not simply chase any sale, chase profitable sales. Be careful not to be locked into selling at a fixed price as this transfers all the risk to you; make sure that you have the ability to pass cost fluctuations.
Pages: 1 2
