How to start an import-export business
- Find your niche and make a business plan
- Fund and register the business
- Find a target market and develop a marketing strategy
- Source winning products and forge supplier connections
- Price and sell your services
- Get shipping documents in order
Launching an import-export business can be daunting because of the complexities of global trade rules and regulations. Below are some basic guidelines, but you’ll have to do the proper research and tailor the specifics to your business type:
1. Find your niche and make a business plan
Which industry or products inspire you the most? Start by doing the following:
Research the market
To determine whether the products you’re interested in are likely to sell, you can use tools like Google Trends, industry reports, GlobalEDGE’s Market Potential Index, analytics from social media channels, and the International Trade Administration’s data and analysis.
Select an appropriate business type
Model your import-export business on a type that best matches your vision—ETC, EMC, or import-export merchant.
Write a business plan
A business plan lays out how you’ll handle foreign qualification—the registration of the business with foreign countries—so you can conduct business there. It also maps out licensing, insurance, and permit requirements. Lawyers and advisers who specialize in international business can help you sort through the details, and government agencies typically provide guidance.
2. Fund and register the business
Startup costs will vary depending on your product type, inventory storage, location, marketing budget, and travel expenses. Also consider costs for salaries, office space, insurance, office equipment, operations, distribution, and logistics fees to pack, store, and ship goods. You’ll need enough startup capital to cover these costs before profits roll in. Then you can take the following steps:
Register the business
Register with your locality, home state, and federal government, if necessary. The US Small Business Administration has information on how and where to register based on the business structure and location.
File for foreign qualification
Register the business with the foreign country where you want to do business. Typically you file paperwork, appoint a registered agent in that country, and pay fees.
Acquire business licenses
Many products don’t need a license to trade, but some—such as agricultural products—require additional authorization or permits from government agencies. For example, you may need a license to comply with health and safety standards, environmental regulations, or trade restrictions.
Register as an Importer of Record (IOR)
If you plan to import goods into the US, register with Customs and Border Protection as an importer of record (IOR) to ensure that goods are cleared through customs smoothly. As an IOR, you pay customs duties, taxes, and associated fees, and are legally responsible for the imported goods. To become an IOR in the US, complete the Importer Identity Form, also known as CBP Form 5106.
For help with understanding and navigating tariffs and international shipping, consult resources that keep you updated on changing trade policies.
Get a customs bond
New businesses may need to obtain a customs bond that provides insurance for any duties and taxes on imported goods shipments of $2,500 or more.
Buy insurance
Import-export businesses can acquire export credit insurance and cargo insurance in addition to standard business insurance. Export credit insurance, obtained from the Export-Import Bank of the United States (EXIM), protects against loss in case buyers in other countries don’t pay. This lets you sell on credit. Cargo insurance protects against lost or damaged freight and compensates you for lost time and profits.
3. Find a target market and develop a marketing strategy
Market research involves investigating the end user you want to target. Because import-export businesses are always making connections with both exporters and importers, both sides of the trade can be potential clients. You can also aim to serve an international market in a niche such as health care.
To bring target customers to your doorstep, establish a strong online presence and reach out to manufacturers and distributors or retailers directly. For phone calls or direct mail campaigns, introduce your company, talk about the potential of international markets, and pitch your business’s ability to deliver results.
4. Source winning products and forge supplier connections
This is probably the most fun part of the import-export business, where you hunt for products to trade and build strong connections with a local manufacturer or foreign manufacturer.
Sourcing products
To find exciting, promising goods to trade, you can travel abroad, respond to inquiries from foreign manufacturers, go to trade shows, contact development offices at embassies, scour trade publications, and follow up with leads you find on the internet.
Connecting with buyers
To find buyers for imported or exported goods, exploit all available online resources—such as B2B marketplaces, industry-specific directories, government trade resources—as well as trade shows, industry events, cold calls, trade associations, and chambers of commerce.
5. Price and sell your services
Figuring out what to charge and how to get products from the manufacturer to the buyer is complex. You’ll have to consider the best options for shipping, packaging and storing, and first- and last-mile transport. Many import-export businesses charge by commission or retainer:
Commission
Selling price is determined by the volume of units sold and the commission earned—commonly a markup of 10% to 15%. If the product is easy to sell and broadly desirable, a commission model can be easier.
Retainer
Getting a retainer means receiving a guaranteed preset payment. Pricing a retainer depends on the estimated salary per hour, wages, benefits, time for conducting market research, overhead costs involved (operating expenses), and a profit percentage on labor, materials, and overhead.
Payments are processed in a number of ways as goods work their way through the export-import trading pipeline:
Cash in advance
The exporter takes payment before the product actually reaches the buyer, sometimes offering a discount or other break. Buyers may worry about paying for products they haven’t received yet, which is why cash payment in advance is risky for importers.
Letters of credit (LC)
These are a commitment by a bank on behalf of the buyer. The bank ensures that the exporter will receive payment, so long as they meet the terms and conditions of the sale. LCs are great for new buyers without long credit histories because the bank backstops the transaction.
Documentary collections
Here, an exporter delegates payment collection to its bank (the remitting bank), which sends required documents to the buyer’s bank (the collecting bank), and instructs it how to pay. Documentary collections tend to be more affordable than letters of credit, but they lack a verification process. In the event of non-payment, legal recourse may be limited.
Open accounts
This gives importers 30, 60, or 90 days to pay for goods after delivery. This benefits the importer more than the exporter, who assumes more risk, but the exporter can purchase credit insurance to cover potential non-payment.
Consignment
The exporter doesn’t get paid until the buyer sells the products. The exporter technically retains ownership of the goods until the sale is completed. An exporter might want this arrangement if they’re looking to ramp up availability of products and reduce storage costs.
6. Get shipping documents in order
Here are the most common shipping documents you’ll work with daily. Be aware that these aren’t the only documents an import-export business may need. See the Department of Commerce International Trade Administration for a complete list.
Pro forma invoice
It includes a description of the goods and a guarantee to provide them at a specified price and date. It’s typically used as a quote to negotiate the sale. Pro forma invoices are also useful for financing, opening letters of credit, and obtaining licenses.
Commercial invoice
This expanded version of a pro forma invoice adds items like reference numbers, payment terms, and banking information. Customs officers use the value of items on the commercial invoice to calculate the customs duty.
Packing list
When products are ready to ship, the packing list details the quantity of goods, packaging, weight, dimensions, and other relevant information. Customs officials use the packing list to check cargo.
Bill of lading (BOL)
This is a contract between the product owner and the carrier shipping the goods by land (inland bill of lading) or sea (ocean bill of lading).
Air waybill
This is like a bill of lading, only for shipments by air carriers. It includes information on the goods for tracking during shipment.
Certificate of origin
Sometimes this is required for letters of credit or at the buyer’s request. It must be signed by a government official. A generic certificate of origin is used when no trade agreements exist between the importing and exporting countries. A Free Trade Agreement certificate of origin voids or reduces tariffs, depending on the language of the trade agreement between exporting and importing nations.
Export license
Before shipping, check with the government agency that oversees the product category to see if a license is required. Check also with state and local officials to see if any other regulations apply. For example, you can check the Department of Commerce for the product’s Export Control Classification Number (ECCN), which identifies so-called dual-use items for export control purposes. This includes goods connected to national security, nuclear non-proliferation, missile technology, chemical and biological weapons, criminal activity, and terrorist threats.
Import license
With some exceptions, products entering the US do not require import licenses. An import license may be required for food and dairy products, plants, animals, arms, ammunition, explosives, radioactive materials and nuclear reactors, prescription drugs, trademarked articles such as name-brand shoes, handbags, luggage, golf clubs, toys, and copyrighted material like CDs and DVDs. This government document on importing to the US provides detailed guidelines.
Harmonized System (HS) codes and tariff rates
Understanding tariffs and customs duties is essential for import-export businesses. The Harmonized System (HS) is a standardized numerical classification system used worldwide to identify products for customs purposes. Each product is assigned an HS code that determines what tariffs and duties apply when crossing borders. Incorrect classification can lead to shipment delays, unexpected fees, or penalties. Research the applicable tariff rates for your products and consider using tools that help simplify the process of finding the correct HS codes and understanding how to navigate changing tariff policies.
Electronic Export Information filing
When a shipment exceeds $2,500 in value or an export license is required, this filing is submitted to the Automated Export System. This is so the US Census Bureau can gather trade data on US exports and ensure customs compliance.
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Import-export business FAQ
What documents do you need for an import-export business?
Required documents vary depending on the countries involved, but the necessary ones include:
- Pro forma invoices
- Commercial invoices
- Packing lists
- Bills of lading (BOL)
- Air waybills
- Certificates of origin
- Import-export licenses
- Electronic Export Information filings
Are import-export businesses profitable?
Estimated average profits range widely. To make an import-export business profitable, control overhead costs and price goods to ensure a healthy profit margin.
Do I need a license to import to the USA?
In most cases, US Customs and Border Protection does not require a license to import or export most products. Some products, such as agricultural goods, will need licenses or certifications to import or export. Check with the government agency responsible for overseeing the products you plan on trading.
