Companies new to the import business have a fairly large learning curve. They have to learn all the incoterms, understand the regulations that govern imports, know when and how to file their ISF form, determine if they need a customs bond, and more. You’re still going to make some mistakes as a new importer, but you can also learn from the past mistakes of others. These most common mistakes that new importers make will help you avoid the pitfalls that other companies have sunk.
Not Having Enough Capital Upfront
The Internet is full of stories from importers who have successfully started a business without much capital. Maybe they use drop shipping methods or other strategies that limit how much inventory they have to purchase up front. While there are certainly ways to minimize the amount of money you have to invest in products, you are still going to need a significant amount of upfront capital to start an import company.
In almost every case, importers have to pay for inventory and freight before they can take possession of any product. And as a new importer, you might not get very favorable payment terms from your suppliers, either. Until you can prove your credit worthiness, you’re on the hook for just about everything related to getting your products from an international seller to the US If you’re turning your inventory every four-to-six weeks, experts recommend that you should have enough capital on hand to finance the first six months of your operation.
Not Having a Business Plan
There are a lot of tools available to help importers get started, so many people think they can just jump into the industry and get started. Unfortunately, this is a sure path to failure. Just as you need a business plan for a brick and mortar business, you’ll need a business plan for an import company. If you’re looking to get a loan, any financier is going to require a plan, but if you’re financing it yourself, you should still have one.
A solid business plan includes components such as market research, product research, marketing and sales strategies, company organization, and financial projections. In other words, you really need to put a lot of thought into how your company is going to be operated and what you’re going to import. Just because a product is currently in demand doesn’t mean it’s right for you to import. You need to put the research in to make sure that the product is profitable in the current market.
Picking the Wrong Product
This mistake goes hand-in-hand without having a business plan. It’s easy to choose the in-demand product to import and sell, but it might not be the best decision. For example, if the market is already saturated with that product, you’re going to have a much tougher time selling it than you would if you chose a more unique item.
Yes, there has to be a demand for what you’re going to import. Otherwise, you’ll be stuck with inventory that you can’t sell. In some cases, it’s even better to take orders for a product before you import it to make sure you have enough demand and you’re not taking a risk on the unknown. However, in that case, you may not be able to get your customers what they want very quickly because the import process isn’t always quick.
You really have to make a deliberate product choice when you’re importing anything, especially for the first time. Unless you know that a product is going to sell, you’re risking your own capital whenever you bring inventory into the US from overseas. This might be the hardest part of becoming an importer because you aren’t psychic and you can’t always know what is going to sell and what isn’t. The more research you do, the better off you’ll be.
Not Knowing Product Bans and Restrictions
All countries have bans and restrictions on specific products and importers are responsible for knowing what they are before they ship anything from overseas. Of course, you might be able to make a lot of money importing a banned item, but if you get caught, you’ll likely lose your business altogether and find yourself in a heap of financial trouble as well. It’s definitely not worth trying to smuggle in anything that’s on a country’s banned or restricted list.
Fortunately, governments make their product bans and restrictions very clear on their websites so that you have no excuse not to know them. If you accidentally import something that isn’t allowed, it will be seized by Customs Border Protection (CBP) and you’ll lose the money you invested in that product. Not only that, but you’ll also have to pay any related fines as well.
Moreover, as an importer, you’re ultimately responsible for the products that come into the country, even if your supplier or manufacturer is doing something you’re not aware of. For example, if your supplier is making their product out of a restricted material, but they tell you it’s another material, you’re still responsible for the final product when it lands in the US For this reason, choose your supplier very carefully so that you don’t find yourself in a bad situation with CBP.
Not Calculating All Costs of Importing
The first step toward ensuring you calculate all costs of importing a product correctly is to understand the incoterms. Incoterms are a set of 11 rules that all countries use to define the responsibilities of both sellers and buyers in an international market. Each incoterm explains what the seller is going to pay for and what the buyer is going to pay for on each transaction. If you ignore an incoterm, you could end up paying significantly more than you thought you were going to pay when your product arrives in port.
The incoterms also define who is responsible for obtaining applicable licenses or other types of official authorization to import or export goods. Again, if you don’t know the incoterms, you might not obtain the authorization you need to bring your products into the country and they will be held in port until you do. And you might have to pay a fine as well, thereby reducing your profits.
Not Getting Help From Experts
You don’t have to run your import business yourself. There are plenty of experts who can help you with various aspects of your operation. For example, partnering with a customs broker will assist you by filing the right paperwork to get your imports into the country without difficulty. A broker will also help you obtain a customs bond if you need one and ensure your products are properly insured according to regulations.
Other partners that are vital to your success as an importer include a freight forwarder, a container consolidator, and a distribution company, among others. Each of these businesses has specific knowledge about the import process that can get you through the first few years of establishing an import company. You shouldn’t try to navigate this industry on your own, especially when you have access to professional assistance.
Not Staying Up to Date With New and Changing Regulations
The import-export landscape changes all the time, and with it comes new and changing regulations. The Department of Homeland Security (DHS) is constantly implementing new rules and programs to ensure cargo safety and security. As with any law, it’s your responsibility to stay up to date with every new and changing regulation that impacts your business. Ignorance of the law is not a defense and it will not get you out of trouble if you disregard a DHS policy put in place.
By partnering with the experts mentioned above, you’ll be aware of any changes that affect your imports, but you should also subscribe to publications that discuss the import-export industry so that you stay informed about any new rules or changing rules that you’ all need to comply with to keep your company running smoothly. While most rules include a grace period to get companies used to follow them, you don’t want to be unprepared for when that grace period ends.
Not Understanding the Supply Chain Timeline
This is a big mistake that many importers make. They don’t understand how long it takes for a product to get from their supplier to the US by ship. And even if they calculate that time correctly, they fail to take into account high peak times such as holidays or supply chain issues such as those that occurred during the pandemic.
The best advice is to order your products as early as possible to replenish your inventory before it runs out. Of course, this is easier said than done. If it were easy, there would never be any out of stock items that customers have to wait for. As with everything, do your research to determine your demand versus supply chain timeline and place your orders accordingly.
The import business is not for the faint of heart, but it can be extremely lucrative once you get established. Just remember to research everything carefully before you get started and rely on experts to help you get where you want to go.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.