Are you thinking of selling your products outside the U.S? If you are like most small business owners, it’s likely there will be more to it than you think. Many small business owners are enticed by the lucrative potential of cross-border sales. The thinking usually goes something like this; ‘my sales are going well here in the U.S., just imagine how my business would grow if I started selling in brand new cross-border markets. I’ve already got the products and the infrastructure so the margins will be great and the extra work minimal’. If you’ve been thinking along those lines I am betting, as an ecommerce accountant, that there is a lot more to it than you think. Now don’t get me wrong. I don’t want to rain on your parade. Yes, selling cross-border can be a great move for many small businesses but it can also become a nightmare if you go into it uninformed and unprepared. So, here are five tips to help you avoid the most common pitfalls of taking your business international.
1. Know your true costs
You need to know what your actual landed cost (taxes + import tariffs + shipping charges) will be for each country that you plan to sell into. You also need to estimate the additional costs associated with marketing, customer service and any country specific requirements like translations.
Once you know your actual costs you will need to determine the margin required to cover these additional costs and then determine if the market will bear the higher price. If the numbers don’t work you may want to re-think your cross-border strategy.
2. Have a country specific marketing plan
It is easy to fall into the trap of thinking, ‘if I build it people will come’. You might think that since you already have a website, people around the world can search for your products and voilà you can easily start generating sales from cross-border customers. But use caution here. Yes, selling into international markets is much easier these days due to technology. But you need to have a solid plan on how international customers will find you. For instance, will you need to be on international search engines and local social platforms to effectively market to your potential customers? You will also need to make sure brand and product names resonate with international buyers. And do your research to avoid product name blunders like these epic fails in branding examples;
- Coca-Cola’s brand name, when first marketed in China, was sometimes translated as “Bite The Wax Tadpole.
- Mercedes-Benz entered the Chinese market under the brand name “Bensi,” which means “rush to die.”
Other marketing and selling aspects to consider;
- Make sure you have done your research to determine the market opportunity in the region
- Understand what challenges there could be related to cultural and language differences
- Find out what tariffs will be imposed on the products you plan to sell
- Know what the country specific regulations and requirements for selling are. Every country has a list of regulations including tariffs, duties, taxes, and banned products.
- Identify your primary competitors and determine how will you compete against them
- Develop a mini business plan that will outline your plan, strategy and goals for entering each new market
3. Determine the most effective selling strategy.
There are three common approaches when it comes time to start selling your products into an international market. Select the one that is best for your company during your new market entry phase. You can always switch strategies as your international business grows.
- Sell on your own website. At first glance, this may look like the obvious best choice. But as discussed above, it is critical that you know your landed costs under this strategy. The total cost to get your product to your international customer will include taxes, tariffs and shipping and, as a result, can be quite high. This is one of the biggest pitfalls for new international sellers. If you don’t calculate costs accurately and inform customers upfront of the final cost to receive your product you risk ticking them off, getting a bad review and losing a customer. You might also incur additional costs and headaches. If the customer refuses to accept the goods because they weren’t informed of the true cost, you will be charged for the return freight and incur costs associated with returned goods.
- Consider a third-party – There are multiple third-party options available to take care of the details of getting your products from the U.S. to international customers. It is worth your time to check out providers like FedEx Cross Border and ShipperHQ. Take a look at what they have to offer and do your research to determine if this is a good option for your business.
- Sell on an international marketplace – Marketplaces such as eBay, Rakuten, Amazon, Lazada, etc. are often the easiest and most cost-effective way for small businesses to enter international markets. But using one of these marketplaces will add to your costs. You will need to look at how these added costs impact your margins and end user price. Can you still be price competitive after factoring in these additional costs? These sites also have rules so check them out to make sure you can comply before finalizing your decision.
4. Develop a phased approach to international operations
Think of entering the international market as being in start-up mode again. Start small and build your international operations infrastructure as your international business grows. Make sure you have a good plan for handing shipping services (including insurance), payment options, accounting, business insurance, and dealing with returns. Use technology to help where it can. For instance, technology can help in automating the estimation of tariffs and duties, the technical support needed to deal with multiple currencies, international pay types, translations and more.
5. Don’t get tripped up by taxes
The recording, remittance and accounting needed to manage taxes related to your international sales can get complicated quickly. Just one of many complicating factors is the VAT (Value Added Tax). This must be collected from the buyer at the point of sale. You’re then required to remit the VAT payment to the relevant country’s revenue authority on specific dates. These complexities exist even if you use a marketplace such as eBay or Amazon.
Hopefully you already understand that the IRS likes to see everything clearly broken out. If you decide to use a marketplace, don’t be tempted to run all sales through a single marketplace account. You want to have detailed reporting for each country. The setup is critical here. Work with an accounting and tax firm that has experience helping small businesses with international sales. Setting things up properly upfront can save you time, money and headaches in the long run.
Hopefully these tips will help you get the wheels in motion and help you avoid some of the common and potentially disastrous pitfalls of international selling.
We have already helped many ecommerce clients set up their accounting and tax reporting in preparation of going international and we are here to help you. If you are thinking of starting cross-border selling or have already started but need help getting your accounting and tax reporting in order, get in touch. Give us a call at (619) 819-0252 or submit our contact form.
About the Author
David Heistein, CPA
Dave is co-founder and managing partner at Profitwise Accounting. Dave is a Certified Public Accountant in the state of California, as well as an advanced QuickBooks Pro Advisor and Instructor. As a small business owner, he is dedicated to educating and informing other business owners on bookkeeping and accounting matters.