Make sure your suppliers can supply your business should you receive a large order. If they can’t meet demand spikes, arrange alternative suppliers to go on standby.
Product-based exports
If you manufacture products (or outsource manufacturing to others) then consider these factors:
- capacity - do you need to invest in more capacity? Can you scale up your present manufacturing capacity?
- equipment - will you need extra equipment? It’s worth completing some contingency planning in advance. For example, if the machinery you need has to come from overseas, what is the delivery time? If the machine is a later model than existing machinery, will you need technical help to install the machinery and train staff in its use?
- finance - can you secure the finance for this equipment? Sort out possible credit lines in advance.
- staff - what extra staff would you need? Can you secure skilled operators at short notice?
- pricing - how will any extra costs affect your product pricing? Greater volume production may mean lower unit costs, but then the capital and implementation costs outlined above may negate this - at least in the short term. Discuss your pricing strategy with your accountant or financial advisor.
- suppliers - can you source the materials and components? Check that your suppliers have the capacity and commitment to help you fulfill any export orders. Seek alternative suppliers as a backup.
- quality - can you maintain quality and consistency? Quality issues can compound when you are producing larger volumes. Make sure you have quality standards and procedures in place. It is a potential financial and reputational cost if a shipment is rejected because it is substandard.
- delivery - can you sustain export deliveries? Fulfilling one large export order can be a satisfying achievement, but what if you have to do this on a regular basis? What would the impact be, for example, on your local customers?
- processes - can you manage the whole process? It’s important to have a good project management system in your business. Ask your business contacts or industry association for advice on suitable project planning software.
If you outsource the manufacturing of your products, then work through these questions with the manufacturer.
- Do they have the capacity, willingness and financial capability to scale up if necessary? Are they committed and efficient enough to do this? Can they secure the finance and maintain the required quality?
- Do you need to manufacture overseas? Would it be better to source a manufacturer closer to (or in) your export market? How long would it take to set up to the required standard and what are the costs, advantages and risks?
Service-based exports
The export capacity challenges for service based exports might seem easier, but many of the issues are similar. Where a manufacturing business might have to install extra machinery to meet increased demand, a service based business might need to consider extra staff and resources. Here are some of the issues.
- Do you need more staff? Can you quickly recruit people with the right skills you need? What extra costs will you incur?
- What finance do you need? You may need to purchase any extra equipment such as computers or office furniture. Find out in advance if you can get a credit line from the bank.
- How long will it take to get paid? There may also be a considerable gap between securing an export order and getting paid for it. Make sure you negotiate terms of payment that your business can manage.
- What extra working capital do you need? Your accountant or financial advisor can help you work out how much bridging capital you need. Find out more about finance.
- How will extra costs impact on your pricing?
- Can you subcontract some of the work? An alternative to taking on permanent staff is to use part-time staff, freelancers or subcontract parts of the work.
- Can you sustain export deliveries? The excitement of successful exporting can lead to neglect of your existing customers or a drop off in service levels.
- Can you manage the project? It is important to have a good project management system in your business.
Do you have the production capacity?
Do you have a clear idea of your maximum production capacity? To avoid over promising and then under delivering try to negotiate staggered or later delivery dates with your customer.
Speak to your production staff before committing to an overseas deal. Find out what other orders are being processed or are in the pipeline. If you convert all outstanding leads into sales will you be able to deliver all of them on time? Find out the growth plans of your customers and ensure that you have the capacity to grow as they grow.
Be aware of peak trading seasons and public or religious holidays, as these may impact your production capacity.
Cash flow management and overtrading
Both product and service type businesses need to pay careful attention to cash flow management. Complete your cash flow forecast before approaching the bank or any other lenders or investors. If you do too much business you may be in danger of overtrading; a situation that causes the collapse of many businesses. Defined simply, overtrading occurs when a business trades beyond the capacity of its cash and debt funding resources to fund commitment.
