Buying a Business in Spain

Spain provides plenty of opportunities for running a successful business. As a foreigner your business really needs to be aimed at other foreigners or holidaymakers, the Spanish do not usually patronize foreign businesses unless they are offering something unique. However with the large increase in residential tourism taking place at present there are new opportunities springing up all the time. Owning and operating your own business in a foreign country does present problems but with proper advice and planning any risks can be minimalised. The following is a guide and is no substitute for professional advice.

Don't get taken for a ride

There are many examples of being duped to greater and lesser extents. In Spain if you are not buying the freehold of the premises then you will be paying for the "Trespasso". This is for the goodwill, internal fittings, plant and stock of the business. You will then rent the premises from a landlord, who will require a deposit. These are all critical areas where problems can arise.

1. Opening Licence. See it and get a copy. This should be available at the premises. If the actual licence or a copy cannot be provided then the business does not exist legally. You can agree to buy the business without the licence and negotiate the price accordingly, but get quotes on the costs and likelihood of eventually obtaining a licence first. The final costs of meeting the various criteria and obtaining an opening licence ('Apertura' in Spanish) for a particular business is a large variable. If a business you are considering buying has applied for a licence, and is running pending acceptance of the application for an apertura, then ascertain exactly (from the authorities, not the seller) why the apertura is delayed and what the current status of the application is.

2. Rental contract. You must get a copy of this. It will show;
• How much longer it has to run
• Who is responsible for what type of wear and tear
• What percentage of the trespasso relates to the landlord, what fittings belong to whom
• If the seller has the right to sell the lease
• Whether it is renewable at the end of its term
• When and what any rent increases might be
• Whether you can sell the business on again
• Who pays for what-refuse collection, electricity, water, rates, taxes etc.
• All the other terms a tenant is required to comply with

3. Trespasso. Don't pay too much. If you pay more than its worth (fittings, etc) a lot of your capital will have been consumed immediately. Goodwill is intangible, so be sensible about this. The higher the past trading figures the higher the price of the Trespasso, a difficult one because Spain is primarily a cash economy and some of the turnover may not have been declared!

4. Landlord. It is a legal requirement that you contact this person when the tenancy is changing hands. Paying too much rent is probably the biggest single cause of business failure in Spain so make sure you agree with the landlord the exact rent required and any contract changes.

5. Contract of sale. Get a copy beforehand-you must read and understand everything in the contract, so that you can check everything carefully well before the day of signing. The contract should specify every item which is included in the sale, the terms and timescales involved and guarantee that the business is free of encumbrance, debts and liabilities.

6. Notarial approval. If you don't "Notarise" the signing of the contract and handing over of the money your ownership may be challenged at a later date and you may not be able to claim tax allowances against your capital outlay.

7. Limited Companies (SL). Beware they can have all sorts of hidden liabilities and a thorough check must be carried out on them by a professional. Also bear in mind;

• Taxes are higher than a "sole proprietor"(34% compared with 25%).
• Costs of formation are comparatively high approx. 300,000 pts.
• Annual audited accounts are necessary and the appointment of an "administrator" is mandatory to comply with all the statutory obligations of a limited company.
• Companies cannot be bought off the shelf.

Business Plan

Try to predict every expense you can and work out the monthly outgoings. Obtain this figure for cost of sales and then work out how many sales you require to cover the outgoings every month. You can then decide whether this level of sales to be achieved is realistic. Making early contact with an accountant could prove to be very useful as they will have an idea of what can or cannot be realistically achieved for your chosen business from past experience. For example the cost of sales for restaurants in Spain is about 40% thus for a turnover of say 3,000,000pts(comprised of food, drink, tablecloths etc) you will have to pay your suppliers 1,200,000pts leaving a gross profit of 1,800,000pts from which you will be deducting outgoings such as those shown in the table.

Legalities of buying a business in Spain

Bear in mind that with the exception of a "residencial/work permit (required by any foreigner) all other legalities must be complied with by everyone-not just you. Many people think that the bureaucracy is there just to make life difficult for them but the truth is we all have to live with it. Most documents in our modern, complex world are necessary to prove that you;

1. Are legally identifiable and entitled to be where you are doing what you are doing.
2. Can produce the documents necessary to prove you are the real owner of anything you claim to own.
3. Have met every statutory requirement relating to either of the above.

Make sure you can produce any necessary documents, e.g., residencial, trade licence, statutory payment receipts (social security, rates, licence fees) when required to do so.

Professionals

Don't use a lawyer to fight a case, use him to avoid a case by consulting him before problems arise. Ensure that any documentation associated with your business (from the rental contract through to your terms of business with your clients) has been correctly worded and is legally effective in protecting your interests. A good accounting service will always save you money, more so in Spain than in other places.

Capital

Don't overstretch yourself. Remember that your higher than normal start up costs and lower turnover will call for some funds in reserve.

Good Service

Whether you are beginning an enterprise you have no previous experience in, or continuing your own profession, you must do it well. Do not start something beyond your capabilities. Verbal recommendations can make or break a business-forget get rich quick schemes, long term these never work. No matter whom you are providing a service to, offer a good service at fair prices and word will spread. With patience and hard work you will succeed.