Warm Up: Solid financial bases
In this training session we’ll take a closer look at the financial aspects tied to an export project. In the previous section we hinted at some strategies that might be adopted and their implications from a financial standpoint. It is worth mentioning them briefly:
– Direct or indirect entry into the new market
– Time frames for entering one or more new markets
– Sales & marketing strategy
When you start up an export project, having a solid financial basis does not mean having enough cash to finance your activity… if that were the case, very few companies could afford to export.
Having a solid financial basis means being able to use a financing strategy capable of best supporting penetration into a new market.
So how shall we proceed?
- Definition of an exhaustive, detailed budget. Identifying the costs to be borne in the start-up phase of the export project is fundamental to ensure that the project is managed efficiently and with due awareness. Constant monitoring of these costs will be necessary in order to verify and correct any deviations from forecasts and thereby avoid incurring unexpected expenses that might affect the company’s “ordinary” cash flow, for which it will be necessary to undertake further unanticipated steps (project revision, recourse to other financial resources, modification of the mechanism of penetration into the new market, …);
- Clear identification of the expected returns from the export activity. Staying on course with a clear view of the objective to be reached will enable you both to simplify the decision-making process in the various stages of managing the activity and identify the strategy to be adopted in your approach to new customers and the formulation of sales policies. We can identify two common mistakes in the initial stages:
- An unstructured, and above all unrealistic approach to analysing the expected return times. The “Best, Base and Worst case scenario” continues to be highly recommended.
- Starting off without having properly identified the business opportunities on the different export markets, so that you end up dissatisfied or disappointed, or adopting the wrong approach so that you won’t be able to conclude sales contracts that are strategic for developing this area of business in future years.
- Identification of the most suitable financial sources on which to rely to start up your export activity. How to finance export activity is a question that has various answers. The company’s financial structure, the project characteristics and the public support offered by the State will all be factors that will guide you to the best choice. A company can consider it more advantageous to turn to on sources (public) that support export initiatives, or better to opt for self-financing, or else rely on bank loans.
Finally, a brief mention goes to Project Sales Management. When setting up your project team dedicated to exports remember to make sure you have someone from the Finance Department capable of grasping and reflecting on the inevitable changes to plans that will need to be made along the way in different financial scenarios.
The second fundamental ingredient is to set up a flow of information created ad-hoc (in terms of times and contents) and aimed at the member of the company’s top management responsible for overseeing financial activities (typically the CFO).
In the next training session we’ll see how you should classify your products!
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