Many expats who move to Spain choose to finance their move by setting up a business and registering as self-employed in the country. This is a great way to work around your family obligations, or maintain a good work-life balance. But it can also be difficult to start with, as there are many legal and tax hoops to jump through when registering a business in Spain.
You also need to have a good business concept and determination to succeed. Data from Spain’s National Statistics Institute shows that only 40 percent of companies in Spain, make it past five years. The survival rate of Spanish companies is one of the lowest out of the 38 members of the Organisation for Economic Co-operation and Development (OCED).
So how can you establish a business in Spain that will be successful? To start with, you can avoid these key mistakes when setting up a business in Spain:
Not Registering For Your Tax Obligations
One of the biggest mistakes any new business owner can make is assuming that every penny they earn is their own. In fact, a significant amount of your income will go to the tax man. Every new business owner should register for IAE, which stands for Impuesto de Actividades Económicas or tax on economic activities.
You will need to sign up to become an autonomo, and register to pay tax and social security as a self-employed individual. You will also need to sign up for a particular IAE, which lets the authorities know which sector or industry your business falls under.
Even if you are exempt from paying IAE, which some businesses are initially, you must still register with the organisation or you could face hefty fines.
Not Writing Down Your Business Plan
Think you have a million-dollar idea? Write it down and plan it out carefully. All successful businesses have a business plan, which acts as a roadmap for how you will start and then grow your business. Of course, not everything goes to plan. And you may find that you need to adjust your business plan several times as you develop your business.
But your business plan should be used as a tool to take into account for the future development of your business. The more comprehensive the plan the better. As well as including factual details about your business idea, you should also add in your sales strategy, for example, and learn exactly how your clients might think.
Not Being Legally Prepared
Starting a business in Spain, like in any country, involves extensive legal preparation and paperwork. Like everything related to the law in Spain, this can be complicated. For this reason, if this is your first time starting a business in Spain, you should seek expert help and advice. A tax consultant will ensure you are registered for the right tax obligations, as well as ensuring you have the right permits and authorisations to start your business. If you don’t get these right straight away, then this can cause huge problems further down the line.
Pricing Your Products Too High
If you’re selling goods or services, then it’s important that you conduct extensive market research to ensure that your prices are competitive. What you charge for goods or services in your home country may be very different to the prices for the same goods or services in Spain. You need to know your market before you set your prices, and ensure that these will attract the right customers.
It’s important to bear in mind that people in Spain generally have lower salaries than those in countries such as the UK or US. For this reason, they also have lower purchasing power. Your prices need to be high enough that they cover your expenses and allow you to turn a profit, but not so high that you’re outpricing similar businesses.
Not Choosing The Right Business Structure
There are many different business types in Spain, and it is important that you choose the right structure and type for your business before you register it. It can be complex, but it’s essential for your company to work. With some business structures you can’t hire employees, for example, and with others you will have different tax implications. The main types of businesses in Spain are:
- Limited Company (S.A.)
- Limited Liability Company (S.R.L.)
- Collective Society (S.C.)
- Limited Partnership (S. in C.)
Not Being Aware Of Your Competition
No business is an island. And whilst your business idea may be great, no business idea is truly unique. For this reason, it is essential that you choose the right partners for your business and take the time to research the competition, and the market, thoroughly.
A business idea that may be successful elsewhere in the world won’t necessarily have the same success in Spain. Before you make a significant financial investment, you should do your market research. Check out the competition. Are there other businesses like yours in the area? If so are they successful? And if not, why not?
If you’re looking to start a business that already has a lot of competitors then this means you know the business model is viable, but you need to consider what will make your business stand out from the crowd. What do you have that other businesses don’t? If you can’t answer all of these questions, and more, then you have not conducted enough market research to go ahead and invest in your business.
Not Having a Back Up Plan
Very few new businesses make money right away. In fact, some companies find that they lose money at the beginning. This is something to consider very carefully, as you will need to have enough money to support yourself and to invest in your business at this initial stage.
It is strongly recommended that all new business owners have a financial cushion in place before they open their doors, and that they have a backup plan in place for what they will do if their business does not make the money they are initially expecting. You will also need to have enough money available each money to pay for your social security contributions, regardless of if your business is turning a profit or not.
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