Start-Up Costs for an Import/Export Business
Capital is the money that you need to start and run your import/export business. When trying to figure out how much money you need to get started, you need to forecast the sales volume you expect your business to reach during your initial year of doing business.
This forecast helps you determine your overall capital requirements. Make your forecast as accurate as possible, and make sure it’s a fair appraisal of what you anticipate sales will actually total.
Here are three types of capital:
Initial/fixed capital: This is the money you use to purchase fixed (permanent) assets, such as office space, equipment, machinery, furniture, and so on, plus any money you need to start the business. You need funds to cover initial legal fees, deposits with public utility companies, licenses, permits, office equipment, advances for rental of premises, and so on. Finally, you need to allocate funds for your opening promotion, which are sometimes referred to as promotional capital.
Operating/working capital: This is your business’s temporary funds. It’s the money you use to support the business’s day-to-day operations, such as salaries, office supplies, utility expenses, and so on.
Growth/reserve capital: This is the money you need, as an existing business, in order to expand or change the primary direction of the business as well as to cover your personal living expenses.
Forecasting is a projection — it’s an educated guess. With your projected sales volume and any information you can secure from trade associations and competitors (such as market potential and market factors), you can project other information, such as operating expenses, size of the facility required, and miscellaneous overhead expenses.
Market potential is the total sales volume that all companies can project to sell during a period of time in an industry under normal situations. Market factors are related to demand for the product (for example, birth rate is related to the demand for baby cribs).
Whether you’re an importer or exporter affects your capital requirements in the import/export business. The capital requirements for being a distributor are higher, so the profit potential also needs to be higher. An agent, because he doesn’t take title to the goods, has lower operating expenses.