Beware of traps before rushing to import with high Australian dollar: Franz Madlener

With the Australian dollar surging to US 97.32 cents overnight, many entrepreneurs will be looking for ways to import cheap stock into Australia. But as Villa & Hutt founder Franz Madlener warns in this special piece for StartUpSmart, there are traps for the inexperienced.

This is one of the biggest pitfalls for so many start-ups. Importing stock “cheaply” from overseas for a novice business is akin to thinking that all we need to make butter at home is a cow, a bucket and a whisk. Great in theory, but much more difficult in practice.

As a starting point – more important than worrying about the quality of the stock, or the integrity of the supplier, is understanding the quagmire of import regulations, duties, permits, licences, AQIS (Australian Quarantine and Inspection Services) requirements, and Australian Customs requirements.

Getting something into a container in a foreign country is often the easy part. Getting the container into Australia without the right information, documentation, permits and guidance is the hardest part.

As an example, if you are importing goods in preparation for Christmas, it is important that you are aware of Australia’s strict import conditions for 2010, as these will already vary from the requirements in 2009.

There is a wide range of high-risk quarantine items capable of carrying foreign pests and diseases. Because Australia is a great big isolated island, there are many threats to Australia’s unique environment which may have serious consequences for our country’s import and export industries.

If your products do not comply with quarantine requirements they will be treated, exported, destroyed or withdrawn from sale at your expense – which can be far more costly than the goods themselves. Even if you finally do clear them, it can also mean a delay in delivery of your goods – which can be fatal if your container is perishable, seasonal, or pre-sold; but conditional on delivery dates.

Make sure you are familiar with what products and materials can be imported into Australia and what items may require an import permit before shipping or will need to be declared to AQIS for inspection or treatment on arrival. I would suggest you meet with a really good Australian importation broker before placing an order, and do your homework.

The total cost of importation, duties, taxes, charges, freight and fees is often more than the cost of the items themselves, so what may appear cheap in the factory overseas, suddenly becomes far less attractive once all the costs are tallied up.

Even in our Villa & Hut homewares business, not a week goes by that I don’t hear from a customer who tells the same story: “I bought some furniture overseas cheap – but by the time I got it into my house – it cost me three times as much just to clear it! If I had of known I would never have bothered.”

Equally, I often get calls from start-ups asking for help on importation permits and fumigation issues, and the difficulties in importation compliance. As an example of the complexities, we have imported over 1,000 containers into Australia and still get caught out. Only last month we couldn’t clear a container because the fumigation company that we used overseas had been placed on the ‘black-banned’ list by AQIS. The problem was that this company was only black-banned by AQIS after the container was put on the ship! Had our business been reliant on that stock arriving by a set date, or been presold at a fixed price, we could have had a serious problem.

Finally, most suppliers require a deposit on placing the order (say 70%), and the balance upon releasing the original importation documents to you (say 30%). It is not uncommon to have your money tied up for 120-150 days before the cashflow starts coming in; assuming your customers pay you on time. Other suppliers will require an LOC (letter of credit) from your bank, and others may give some credit pending security. Regardless, you will be handing over money a long time before you see it coming back.

So here are my top 10 tips for importing from overseas:

1. Never believe what an overseas supplier tells you about Australian import requirements. They wouldn’t have a clue.
2. Ensure that you manage every part of the importation process with the supplier. It is your stock and you need to control the process.
3. Determine all the requirements and costs by meeting with a local import broker before you place an order.
4. Don’t let the container leave until you know that all the requirements for importation have been met, otherwise you will learn the meaning of the word “demurrage” the hard way (the cost of not being able to clear a container).
5. Add 50% onto whatever anyone tells you.
i. If the supplier says six weeks for production – allow for nine weeks.
ii. If the shipper says four weeks for transportation – allow for six weeks.
iii. If the broker says one week to clear the container – allow for two weeks.
iv. If the transport company says it will deliver your container at 10am, don’t expect it until 4pm.
v. Once you have got all the costs in – don’t be surprised if it totals 50% more than you thought it would.
6. If you can – get photos of production stock before it goes into the container – or better still; try and have someone you trust inspect it.
7. Be prepared for damaged, broken or soiled product. It will happen, and your supplier won’t want to know about it.
8. Supervise the unpacking of the container yourself – or better still – do it yourself; this is when most of the damage occurs.
9. Plan your cashflow costs very carefully – before you sign the order. Do you really have the funds to carry this?
10. Calculate your real final margin very carefully – before you sign the order. Is there really enough profit in this?

Finally, I am always reminded by the first piece of advice on importation I was given 12 years ago: “Do you want to know how to make a small fortune by importing? Start with a big fortune and watch it dwindle.”

There is profit to be made on importing the right products, bought at the right price, under the right terms and conditions, with the right support and advice.

Keep in mind however my analogy of how easy it should be to make butter at home; in theory all we need is a cow, a bucket and a whisk. In theory importing should be easy for a start-up; all we need is a supplier, the stock and a container. If only it was so easy!

Finally, Google “AQIS” and “Australian importation requirements” for more information – and find a good local importation broker.

Franz Madlener owned his first retail store at the age of 18, worked for the Australian Retailers Association and then founded Villa & Hut in 1999. By 2010, Villa & Hut has a turnover of more than $50m, with 50 outlets and 3000 staff around the world.

This article first appeared on StartupSmart, Australia’s premier site for people starting a business.