Selling your products in the United Kingdom should be so simple. With no language issues, just set up a website, maybe add some u's ("favourite"), find a shipper that's not extortionate, and you're done, right?
"There are huge, meaty issues to consider," says Larry Harding, president of Annapolis, Maryland-based High Street Partners Inc, which helps small firms set up foreign offices. And U.S. companies are generally at a disadvantage because "we're not as well-practiced and sophisticated as, say, European companies at selling across borders. It's not intuitive: A Massachusetts company selling to a customer in California doesn't have these issues."
First the good news: In this world-is-flat-time we're living in, if you have a market in the United States, you have a market in the U.K. almost certainly, experts say. And it's a good time to expand: In his State of the Union Speech, President Obama set a goal of doubling exports by 2014. "The more we export, the more jobs we create at home," he said.
Some 70 percent of all U.S. exporters have 20 or fewer employees, says the Small Business Administration. So there's a handful of special loans available, including the Export Express program, which offers expedited loans for amounts less than $250,000.
Now the issues.
First: shipping. The cost of this has stopped many a company, including nut and seed butter company Naturally Nutty.
"Shipping is our biggest roadblock because of sheer expense," says Tim Kearney, vice president of the company, which is based in Traverse, Michigan. "There are plenty of options but because we use glass the weight of our stuff becomes problematic." (The company prefers glass to plastic.)
Bramble Berry, which sells soap and soap-making products, and is based in Bellingham, Washington, has been shipping to the United Kingdom for about 10 years. (CEO Anne-Marie Faiola notes that customers in England can see the shipping quote before buying—"and that's a big plus.")
Her tip: Don't ship via the U.S. Postal Service because it can take up to 90 days for an international package to get to a customer—and, she says, about 5 percent of packages went awry and filing claims was difficult. Packages shipped via FedEx are trackable.
Says Faiola: "I wish someone had told me that I would have thousands of dollars of claims denied by USPS when I first started. I would have started pushing customers to ship via FedEx way faster. It's more expensive—yes—but on the plus side, you always get your package." She adds: "The higher shipping costs are definitely an obstacle. We
would love to export more but with shipping costs, it's definitely a barrier for our customers."
So you've got a way to ship—but can you actually make sure it gets to your customers?
If you have an actual good that needs to be imported in, key questions include how to get it cleared through customs and identifying whether the U.K.'s value-added tax (VAT) needs to be assessed on the goods. (More and more often, it does.)
One huge issue: Whom is the importer of record—you or the other party (often your customer).
"You don't know how many times we've had businesses come to us not understanding the importer of record issue, and a sales VP has said, 'hey, we'll be the importer of record' and they don't realize they've created an enormous hurdle," says Harding.
That's because it's the importer of record's problem to deal with customs compliance.
"Nine times out of 10 it's one of the first issues we try to unwind, particularly the giving away of that obligation if we can," Harding says. (He has seen cases where companies have agreements for million-dollar sales, by which point "they're not in a position to say, 'You know, we didn't really understand.' And they just have to plow forward.")
Nutiva, a California-based company selling superfoods, started selling in the United Kingdom about five years ago. Shanti Rae, the company's head of business development, says the process of organizing to sell abroad took about six months. The company decided not to ship direct to customers, but instead to have a U.K. distributor who handles all the paperwork, including the importer-of-record issue.
Because Brambleberry ships directly to the customers' doorstep with FedEx.com and Fed Ex does all the customs clearing, customers end up paying the import fees. "Which makes us sad but that's just the way it goes," says Faiola.
If there's no way around your company taking on the importer-of-record obligation, it means you will have to become VAT registered in the United Kingdom. You don't actually have to be in the U.K. for this, but it does mean you have to comply with the regulations of being a VAT-registered company. Which means—you guessed it—more paperwork, including periodic filings, even if you haven't made any sales.
"It's sort of like having a baby," Harding says of being VAT-registered. "It's not just the baby—you have to look after it for years."
You can learn to file the paperwork yourself, Harding says, but at first you'll likely have to pay advisers or outsource. Estimated cost: About $500 per quarter.
And if you're set up to charge VAT, of course you'll then have to design your website to facilitate that, among other things. If you decide you can't or don't want to be VAT-registered, you'll have to pay the import VAT, which is 20 percent, and you can't recoup it.
"That may be OK if it's a one-off transaction for a million dollars," Harding says. "But other times it can and does tilt the balance in the cost-benefit analysis of selling in the U.K.
Looking to get some initial advice? It's probably about 4 to 8 hours of advisory research for a specific transaction—so about $1,000 to $2,000 to identify what your professional issues are and the economic ramifications of not getting it right. It may turn out that none of these issues apply to you, but it's easier (and cheaper) to find this out before you start incurring fines and taxes you've never heard of.
You can also get free advice from the U.S. Commercial Service, which helps U.S. companies expand into foreign markets. Eighty-five percent of the service's clients are small to mid-size businesses.
Another issue you'll want to consider: Permanent establishment. If you're a U.S. company selling to customers in the United Kingdom and you have people working there, you could be deemed to be operating in the U.K. And that means you could be assessed a corporate income tax.
One way some companies avoid this is by having one person on the ground to help with your million-dollar-a-year-sale. You'd set up a limited company corporation that would be the employer of the U.K. person, which addresses the permanent establishment issue. The U.S. company would be the contracting party, and the U.K. limited company would only be the employing corporation—so not technically involved in the sales transaction. (If this sounds complicated, it's because it is. See "get advice," as before.)
So you've sorted out the shipping and the customs and the VAT. There's still your website to consider.
Fred Reilly, a Florida lawyer who advises companies looking to sell internationally, suggests wording the terms and conditions on your website to give yourself a home-field advantage and increase your leverage to get paid in full. In particular, he advises paying attention to the choice of law and choice of forum provisions that specify what law will apply to the contractual relationship (ie, your state/U.S. federal law) and what court will have jurisdiction over litigation.
"If you don't state a choice of law or choice of jurisdiction in your contracts, you may find you're defending a dispute in London according to British law," says Reilly, who is also qualified to practice as an English solicitor.
Two other points: Chances are you will want an attorney's fees and costs provision that states that the prevailing party in a dispute will be awarded reasonable attorney's fees and costs. Without a contractual provision or a specific statutory provision, you'll be unable to recover attorney's fees in a dispute. And finally there is the binding contracts and electronic signatures provision, which spells out how and when a binding contract has been formed—crucial if you do transactions through your website, he says.