How to Finance Your Nearshoring Business

Manuel Russek, business development manager for Blu Capital, gives the key financial things you need to know to start nearshoring.  

One of the most challenging aspects of starting nearshoring is working out the financial side of the equation. Nearshoring America Now sat down with Manuel Russek, the business development manager for Blu Capital, which specializes in the field, to get his expert advice on the best way to proceed.

NEARSHORING AMERICA NOW: What do you look for when  assessing the financial situation of the companies you want to start working with?

RUSSEK: The most important thing that companies need to have up to date is always a balance sheet and a profit and loss. Most of the companies that provide financing want to know the health status of the client, and these documents, among others, are the most important. Another very important point is to always have a constant cash flow, it is the gasoline of the business.

NAN: What is the first thing a Mexican manufacturer must do if it wants to start exporting to the United States?  

MR: First of all, have good legal and accounting advice. The product you want to export may be subject to certain duties, taxes and other charges. Also check if you need approval from any U.S. government entity and depending on the product you want to sell, it is important to review trademarks or patents.

NAN: What are the initial financial and strategic steps a U.S. company should take when exploring Mexican sourcing options?

MR: It is very similar to the American part in the first steps. The first thing is to incorporate a company in Mexico, have your RFC, your positive compliance opinion and be up to date with other obligations. Set up a first commercial credit to appear in the Buro de Credito and let the financial institutions begin to see that you have a good payment behavior. Another important thing is that it is always preferable for the owners to have some kind of business in Mexico or that their American company also has some weight to be able to support the company in Mexico if it is required.

NAN: From a financial perspective, do you recommend partnering with a local agent or dealing directly with Mexican manufacturers? What are the financial risks and benefits of each approach?

MR: There are many risks in both cases. Financially it would be healthier and less expensive to deal directly with the manufacturer, although many times to deal with the manufacturer it is required to reach a certain volume of purchase and have a partner in Mexico that could give certainty to the operation.

On the other hand, dealing with a local agent would definitely be much easier as it would take away logistics, customs and other issues. However, the final cost of the product would be more onerous.

NAN: How important is an on-site factory visit to assess the operational and financial health of potential suppliers? Can financial data be sufficient to make decisions?

MR: A big part of the analysis as always is the quantitative part, what you can quantify in terms of numbers. That is, financial statements, bank statements and other documents that you can review. However, the qualitative part, seeing exactly who you are dealing with from the person to the physical facilities, is just as important as the numbers part.

NAN: Once sourcing has begun, what are the most efficient and cost-effective payment strategies for materials, production and delivery from Mexico to the U.S.?

MR: Definitely the safest and most reliable method of payment will always be the bank. American banks all offer the service of transferring money to banks in Mexico, however, it will imply a higher cost due to commissions and exchange rates.

NAN: Anything else you recommend to ensure a stable and profitable partnership?

MR: As I said, visit the plant of the supplier you are looking for a relationship with. Check if it has the installed capacity, quality and other conditions you want. Then, check if it is associated with any organization. This gives you a lot of weight, since you have many references about that supplier. And among many other things, always take work with a purchase order and the payments that go according to the stages of shipment of the product and when it is received in the United States.

NAN: Thanks Manuel and see you at the Nearshoring America Expo in December.