6 Tips for Launching a Business Overseas

By Jeff Wuorio

Some businesses think around the block. Some set their sights a bit farther.

At some point, it's possible that you've considered an overseas business. Perhaps you've been pondering relocating temporarily outside the United States (a la the proverbial Army brat), opening an overseas branch or subsidiary, or simply wondering about the mechanics of selling a product halfway around the world.

It's no shocker: Business in one nation can be worlds apart from its next-door neighbor.

The formula becomes all the more muddy depending on logistics. Are you going to actually be in the country or staying stateside? Still, there are a number of salient issues that apply to all overseas ventures, no matter the country or the business. Here are six to get you started on the right foot.

Start with the U.S. Department of Commerce

This should be stop No. 1, regardless of whether you're packing your suitcase or staying put. The department can provide a wealth of information, covering such topics as overseas agents and tax ramifications. Even better, it's gratis.

Spend some time determining just how "different" things will really be

One assumption that many domestic businesses are too quick to make about entry into international markets is that they're drastically different from the U.S. — that laws, commercial customs and the like are, by definition, exotic and bewildering. That certainly may be case in some places — laws and practices of certain countries in Latin America, for example, have been described as such. But there are many other countries where the basic nuts and bolts of business aren't that far removed. That was what Bulent Bicer learned when he and his wife established EuroMarket Partners in Germany in 2003. In fact, the company's central mission — to assist American companies with sales throughout Germany — is indicative of those very sorts of similarities. "The biggest obstacle is the perception that the German market is a 'foreign' market," Bicer says. "It's really not much different from doing business in a different state. But you have to know what you're doing or you're going to waste a lot of time and money."

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Seek out local guidance

Bicer's experience doesn't mean that every overseas market is, in essence, a mirror image of the United States. Anything but. That makes hooking up with competent advisers, locally based, absolutely critical. Whether it's an attorney or a banker, make certain that they're located in the market where you want to set up shop. For instance, law firms with international contacts will likely be able to refer you to an attorney situated where you hope to do business; check, too, with any sort of local bar association."Try asking people who've already done business there if they can suggest someone," says Burton Landy, chairman emeritus of the international practice group at Akerman Senterfitt, a Miami law firm. "It's critical to obtain good, local legal advice. You're not only dealing with a different legal system, you may be dealing with a different language and culture as well."

Research the particulars of the market — and the market for your product

A potential land mine for Americans looking to do business overseas is the mistaken assumption of novelty — that a product or service, by virtue of being "American," is somehow unique enough to sell itself no matter where or how. That's a potentially fatal mindset. For one thing, unless you're looking to hawk cell phones in a country that barely has wire-based communications, it's dicey that anything is going to prove that singularly novel. On top of that, it bypasses this basic precept of starting someplace new, no matter the exact spot: You need to investigate your market exhaustively to determine whether, in fact, you've got something someone there will take an interest in. "It's imperative to understand the market conditions such as overall potential, competition and marketing channels," Bicer says. "It's no different than what any entrepreneur would do before going into business in the United States."

Protect yourself and your intellectual property

It goes without saying that your physical security is at greater risk in a foreign country than at home. But don't overlook other forms of protection that are almost equally as critical. If, for instance, your operation is centered on a genuinely unique product or even a recognizable logo, be sure to investigate necessary trademark protection in any country you're considering. Not surprisingly, the issue of intellectual property is substantially different from one country to the next, so make certain you line up any necessary patents and trademarks proactively — one by one, if need be. "It's simply important to know the rules where you'll be working," Landy says. "And that means protecting yourself well ahead of time."

Arbitrate, don't litigate

One final tip may seem idiosyncratic but, in fact, could save you piles of both cash and time. No matter if you're selling a product overseas in abstentia or starting a new business by moving to a foreign country, make certain that any contracts you draw up contain a locally enforceable arbitration clause to settle any dispute that may crop up. It's an ace in the hole on several levels. First, consider the logistics. Settling a problem via arbitration doesn't necessarily mandate a lengthy trip. (A case heard in court, however, may well require just that.) Tack on the issue of cost — not merely for expenses paid for any sort of legal representation, but also for being in those parts of the world where a greased palm is the most efficient means of obtaining fair and speedy jurisprudence. That's not only cost-effective but considerably less messy for all concerned. "Arbitration is the best way of avoiding getting bogged down in any local court system," Landy says. "It's less expensive, quicker and, just as important, keeps the dispute private."

How to Tap an IRA or 401(k) to Help Fund a Start-up

There are ways to use IRA and 401(k) funds to finance your start-up business. But it isn’t simply a choice of writing yourself a check. There are significant legal steps. The key is rolling over the money into a corporate retirement account that permits you to invest in the business.

A nonexpert would likely need the help of a financial planner or third-party retirement-plan administrator. These professionals set up a C corporation and establish a corporate retirement account. A person can then roll outside retirement accounts into the corporate plan and invest the money in the company’s stock. Since the person is buying shares of his or her own business, he or she is effectively feeding it money.

Warning: If you’re under age 59 1/2 and you do it wrong, you’ll have to pay taxes on the money you use as well as risk an early-withdrawal penalty.

Tax experts put such investments into a gray area of the law. The Internal Revenue Service says such moves raise legal and procedural issues. While the IRS has issued determination letters validating many of these plans, it is continuing to study the issue. There’s no IRS ruling authorizing the full process.

Advisers are likely to charge several thousand dollars to help set up a plan and levy hefty annual fees. So this strategy makes financial sense only if a person is investing a big chunk of their retirement money in a business.

Since many start-ups fail, it may be unwise to use your retirement nest egg to start a business. Instead, first look to nonretirement assets such to taxable savings and brokerage accounts, reserving at least six month’s worth of emergency savings. Then consider home-equity credit or refinancing, and loans from friends, family, acquaintances and banks.

If you are still employed, you might want to consider a loan from your 401(k). But keep in mind that the loan usually must be repaid before you terminate employment. If you have a Roth IRA, you can take tax-free and penalty-free withdrawals of all contributions to the account that are at least five years old. But you can’t replace the money after it’s withdrawn.

How to Borrow From Family and Friends

How to Borrow From Family and Friends

A WSJ How-To Guide

Budding entrepreneurs often turn to a lender that overlooks weak points, provides flexible terms, and offers a dream-come-true interest rate: the Bank of Mom or Dad. Without an established track record, startups often have trouble getting a traditional bank loan or funding from venture or angel investors. So after tapping their savings, founders often turn to informal investors, which usually means family members and friends.

Such arrangements combine best wishes, a pay-me-when-you-can attitude, and few expectations of a meaningful return. That might be the most realistic view of family and friends financing. So in many cases, it might be wise to not formalize the loan since doing so can raise expectations that it will be repaid in full.

Many people will opt for a loosely structured deal in which, for example, repayment may start only when a company has reasonable cash flow and can afford to make payments — a position many businesses don’t reach until three to five years down the road, if at all. Such an arrangement doesn’t raise expectations of prompt repayment. But such vagueness can lead to problems and confusion later on, prompting some experts to urge putting into writing whether funds are a loan, a gift or an investment. Still, terms of the agreement need close attention. Failure to collect interest or a repayment might prompt the Internal Revenue Service to decide the “loan” was actually a gift and impose a gift tax and other penalties.

Online services, such as [1] Prosper Inc. and [2] Virgin Money, a unit of Virgin Group PLC, offer to structure arrangements between borrowers and individual lenders, who are often relatives or friends. For smaller loans, Virgin Money, for example, provides documentation and a payment schedule. For larger business loans, it will service the loans, send payment reminders and provide year-end reports. A more formal plan for larger loans services the loan — including setting up electronic fund transfers, sending e-mail reminders and providing online account access. It also sends out year-end reports to the borrower and lender. The loans are flexible, usually offering lengthy grace periods and interest rates and payment schedules favorable to the business owner.

Some planners note that family members can provide money as an annual gift, helping reduce the size of an estate subject to taxes. Gifts also ease worries of conventional lenders who might be concerned that family loans could impair their ability to collect. One other thought: Some family members who provide loans or gifts think the funds come attached with the right to have a say or participate in the business. Documentation can spell out such issues.

A Business of Your Own

A Business of Your Own

By JONNELLE MARTE

Finding a job in this economy -- even keeping one -- is tough. Tired of the uncertainty, some twentysomethings are going from job hunting to job creating by starting their own businesses.

Generation Y entrepreneurs have a few advantages here: They're seen as tech-savvy, enthusiastic risk takers with fresh perspectives. But they also tend to lack money, credit histories and managerial experience.

Some pointers if you're under 30 and starting a business:

Ask for advice. You may know your "great idea" inside and out, but you might not know as much about writing a business plan, incorporating a company, or managing employees. Reach out to more established business owners by tapping your college-alumni network or finding a support group such as Score, a group of about 11,000 volunteer business executives who counsel entrepreneurs in person or online at Score.org.

"I think the first challenge that I had was wondering where to start," says Joel Erb, who started a Web design company at age 15 and has since expanded it to offer new-media marketing and communications services. Mr. Erb, now 25, taught himself computer coding but learned how to incorporate, finance and expand his company, named INM United, from his mentors.

Be realistic on funding. Finding capital for a start-up today is difficult regardless of your age, but you might be set back further by a weak credit history and lack of business experience. To show that you're serious, write a business plan and have a prototype before you approach a bank or investor.

When Miles Lasater founded a financial-services firm tailored to colleges with two fellow undergraduates at Yale University, they set measurable goals for growth and followed up with possible investors after achieving their aims.

"We were able to show how we progressed," says the 31-year-old Mr. Lasater, who was 22 when he started Higher One, which streamlines the transfer of money between financial-aid offices and students for more than 210 colleges. "So we raised money from people later who said no the first time."

Not having a lot of money at first could actually be good, as "it forces you to be frugal," says Donna Fenn, the author of a coming book about young entrepreneurs and a contributing editor at Inc. magazine.

Search for targeted loans. Try seeking out loans offered specifically for younger entrepreneurs, sometimes made by organizations dedicated to supporting businesses. For example, the Association for Enterprise Opportunity offers loans of up to $15,000 to people who complete the Prudential Young Entrepreneurs Program, a 10- to 12-week course for 18- to 30-year-olds in Newark, N.J., and Philadelphia.

Find a good lawyer. Preferably you should have one that has experience with start-ups. "You can do almost anything else yourself," says Mr. Lasater. But there is no way around this one.

You can try to negotiate fees or find someone to do the work pro bono, but don't try to start a business without an attorney. You need one to help you patent your ideas, incorporate your business and protect your interests when dealing with investors.

That's especially the case if you find a deep-pocketed "angel" investor. "You need to be careful that you don't give all of your business away just to get money," says Jerry Ross of the Disney Entrepreneur Center, a nonprofit in Orlando, Fla.

Email: jonnelle.marte@wsj.com