Business

Contents This page contains important points involved with operating a Tenerife business. These are consistently overlooked by many budding entrepreneurs and business people who eventually give up, or have their businesses closed down by the authorities. Its really just a simple matter to pay attention to these 'Tenerife/Spain specific' details to avoid costly problems later on. Before we continue, 2 recurring primary issues (1) Language. For many businesses in Tenerife, the need to speak Spanish is minimal. However, if you have a speciality formal trade, profession or vocation then there are issues. Say for example you are an Electrician, or a Nurse then you would almost certainly need to belong to a professional institution. This institution would communicate regularly with updates, changes in laws and procedures, and it would obviously be written in Spanish. The question becomes "Is my proposed activity normally subject to regulatory bodies and if so, how exactly would I be able to demonstrate my ability to stay abreast with developments, changes and notifications if I don't speak Spanish?" (2) Business Plan. The number of people who propose running a business in Spain or Tenerife 'without' any sort of attempt at creating a formal business plan is staggering. Failure to collect vital information and costs concerning your activity, and to at least produce a rudimentary projection (ideally a spreadsheet) is a complete recipe for disaster. To 'go shopping' for a Bar that is 'on the market' is a bit superfluous if you don't know how much the trade price of beer is. The 'buying price' and/or Rent are two simple things that can be 'plugged into' your business plan at any time. The real work is researching suppliers, finding out what price you can get your raw materials for, consulting a Gestor on costs of Licencing, Accounts etc. Collecting most of this information will be down to your own efforts, only then can you satisfy yourself that a business looks viable 'before' you purchase or create it.

Business checklist - drill down to the ground rules

1. Don't risk your captital trying to avoid a 100 Euro professional consultation fee.
2. Find and consult a Gestor you are comfortable with to handle things for you.
3. Only use Canarian/Spanish Gestors who understand the system in your location.
4. Every business needs to have/apply for an Opening Licence/s before trading.
5. Every commercial activity has a unique licence. Finding the right licence needs care.
6. Some businesses need several licences, eg, Supermarket - Food, Drinks, Cigarettes, etc.
7. The local tax for the licence/s (IEA) is paid annually to your town hall.
8. Licences from one municipality don't always cover operating in the other municipalities.
9. Get a National Licence (more expensive), if you want to trade further afield.
10. Know exactly what the current and future requirements of your particular licence are.
11. Accepted 'Applications' means you can start, but it is NOT 'granting' of the licence.
12. Expect other documentary requirements, eg, Music for Bars, certain goods on vehicles.
13. Never pay a deposit before you see and verify the Opening Licence or its status.
14. Never assume that a business that is operating, it is legal.
15. Limited companies (SL) are different to many other countries, think well before forming.
16. Rental Contracts need extremely careful attention, landlords rights must be understood.
17. Business sales should be Notarised to confer absolute proof of ownership.
18. Non-Notorised business sales fare badly in tax concessions and disputes.
19. Don't do anything 'because your friend did it', follow your Gestor's advice to you.
20. Ensure the town hall allows your chosen premises to be used for the activity.
21. Talk to potential suppliers at a very early stage, don't just assume you can 'buy well'.
22. Check for debts that will become your liability, suppliers, town hall, social security etc.

The difficult Businesses.

'Difficult' might be the wrong word, its just that there are some business activities I simply would not want to create, the bureaucratic problems could be almost infinite. Its perfectly possible, once you know 'why' something may be difficult or costly to do, to modify your ideas and come up with a variation, which achieves the same thing more easily. So check it out with your Gestor first- here are a couple of examples -

• Beach Activities. If your idea involves trading on the beach, and your foreign to Spain - forget it. These activities are open only to the individuals or organisations that own th 'Beach Rights' for the location in question. 'Beach Rights', were originally awarded to 'Fishermens families' and other people whose livelyhoods were threatened by the expansion of Tourism and conversion of coastal stretches to bathing beaches, hotels and major resorts. Occasionally, they can be sold (in what is virtually a 'closed auction') at very high prices, but invariably, there are a lot of local factors that will prevent you from seriously being able to obtain them.
• Street Trading.. The main problem with 'Hot-Dog stalls', Denim vending, etc, (Static or Mobile) is that all of the licences available have already been issued and will be held by someone. So normally, to obtain such a licence would involve finding an existing owner, and buying, for example, his 'Hot Dog Van', which will possess the licences. Sure, it may mean paying a lot of money for a scrap vehicle, but you get the licence.

Buying a Business.

Got your Gestor lined up? Does your business plan look viable so far? If you don't know, then you will be ahead of yourself at this stage.
Don't hand over any money yet. You need to ask the Seller/Agent for copies of important documents and get them to your Gestor to check out for problems. Simply explain this to the seller, any conscientious seller knows this full well. If there are objections - withdraw.

Typically, you will need to get copies of -

1. Copy of the 'Contract of Sale' you will be asked to sign when you purchase.
2. The Opening Licence or a copy of the Application Acceptance from the town hall and its current status.
3. Rental Contract for Premises (or, if you are buying the freehold, a copy of the Escritura)
4. Last receipt for payment of community fees.
5. UNELCO Contact (Electricity)
6. Telefonica Contact (Telephone)
7. Basura in Alta (Refuse Collection)
8. Any special documents peculiar to the business, Music Licences, etc.

Contract of Sale/Option to Buy This is so important, it defines exactly what you 'really are' buying, not what anyone told you. To be legal, it will be in Spanish, and should define exactly what is included in the sale and what you should expect to assume as existing liabilities. Consult a Gestor or proceed past this point at your own risk.

The Opening Licence (or Application receipt), Rental Contract (or Escritura) documents will show exactly who owns the Business (and/or Premises) and hence, whether the person selling the business actually has the right to sell it. The 'Owner/s' will be the person whose name is on theses documents. If there is no Opening Licence or Application Acceptance document (not the TASA receipt) then beware - the business does not legally exist and should not be operating. A form with the letters 'TASA' on it is merely a receipt showing that an application Fee has been paid - NOT that an application was actually made.

The Rental Contract shows what the existing tenant's rights really are, and whether he is allowed to 'transfer' the rental contract. In fact, such rights are quite rare, and under Spanish Law, the Landlord must be informed of the sale and may have rights to increase the rent and take a percentage of the 'Trespaso'. If it reveals you are going to have to sign a new rental contract, try to negotiate a good rent. High rents are the biggest single business killer today. If asked for more than 3 month deposit, think carefully as you will almost certainly lose your deposit anyway if you are forced to cease trading later on.

The other papers in the list above will confirm names and existence of the various contractual liabilities. When you have satisfied yourself on the exact details of the sale, you should ideally ensure that the whole transaction is notarised.
Any money to be paid (including deposits), should be in the form of a 'certified cheque'. This will be handed over during the exchange at the notary office, where the seller will be handing over the necessary documents to formally transfer ownership to yourself.

• If you are BUYING FREEHOLD premises, observe the same precautions given on the Property page.
• Make sure the town hall will allow you to use the chosen premises for your intended activity.

Running a Tenerife Business.

Get control of running costs
The last five years has seen many global changes in business and commerce. Large organisations are 'consuming' small businesses and expanding and diversifying their areas of influence at an ever increasing rate. These days, like the corporates, our net 'profit' is largely determined by how good we are at controlling/reducing our costs - because modern competition is fierce and we cannot simply increase our prices above what the market will bear, to improve our profits. Very often, the principal outgoing for a Tenerife business will be the RENT for premises. It is also the principal reason for the failure of many businesses. If you think the rent being asked is too high - then you are almost certainly right. Negotiate with the landlord to get it down - or ditch it.

Get the business accounting right
Don't be shy of asking your accountant exactly how and what he is doing to minimise your costs. All too often, I see clients books that have revealed very little 'creative accounting' by previous 'professionals'. Don't get me wrong, there are many perfectly good accountants and gestors in Tenerife, but there are also some fairly incompetent ones.

There are straightforward and perfectly legal ways of ensuring that you are not paying any more tax and social security payments than you really have to. Make sure you choose an accountant with a 'corporate outlook' to accounting, rather than a simplistic 'book-keeping' attitude. He will ensure you avoid late payment fines and also save you far more in the long term.

More about planning a business here Business Tips pages.

Get a feel for business prices here Business for Sale lists.