Tenerife Business

Why businessess in Tenerife can be good opportunities

Tenerife provides plenty of the right ingredients for a successful business. With a few tips, sufficient capital, sensible planning and hard work, most people can develop a business into a solid, profitable operation. Consider some of the features that should work well for you -

Tenerife Businesses, bars & restaurants, enjoy 12 months trading per year. Bars, Restaurants and Businesses get Tax incentives and other benefits. Business taxation is flexible, choice of Module Tax for Bars & Restaurants. Quality corporate business accountants are available for reasonable prices. The lifestyle in Tenerife is safe and secure for business people. The Tenerife - Canary Islands crime rate is low, with effective policing. Tenerife, like Spain, is on the whole, a cash driven society. There is little credit expected or given, thus few credit liabilities

If you are looking to find somewhere to live and to work, you would be hard pushed to find a better opportunity than in Tenerife. The island has grown rapidly into a successful and popular international destination for both tourists and certain businesses. Its a good place to have a financial foot hold, either by owning a property or business interest. With the vast expansion in tourism here, there is a continuing need for tourist related businesses and increased demand for the service industries that feed the ever growing number of tourists and businesses on the island.

Seven key points to being successful in business in Tenerife

1. Eyes open - read this entire page - Almost all Tenerife failures are due to insufficient attention to important items.
2. Don't get 'stitched up' - Avoid by NOT committing premturely and completing your research.
3. Planning - Make a business plan, know exactly what sales will be needed to cover your monthly outgoings.
4. Legalities - Don't 'cut legal corners' you will eventually pay a heavy price if you do.
5. Professionals - Use a Gestor/Accountant and listen to them, the real facts are changing continuously.
6. Capitalise - Have enough capital for living while you develop the business, else go for a cheaper venture.
7. Good Service - Consistency nd Reliability - people notice, it takes time, patience and sufficient capital.

Tip 1. Eyes open to the realities

Tenerife business ventures have every chance of succeeding if you take heed of the lessons learned by those who have gone before you. Once you have made the decision to operate, the temptation to rush into something can be hard to resist - especially when being pressured into buying quickly in order to 'not miss this opportunity'. Most things in Tenerife proceed at a very leisurely pace, this applies to bureaucratic organisations in particular, so rushing around is unlikely to significantly further your cause.
Businesses trade without Opening Licences !! Everyone will tell you this is normal in Tenerife. This is true, but doing so does not set any legal precedent, or imply that the business will eventually be granted, or even influence the granting of a licence - more on this below. Use a Gestor.

It all takes time !!
Obtaining and processing the necessary documentation to actually check out, transfer ownership and establish a new fully legalised management takes a period of time, over which no individual has particular control. If you are under pressure to effect a transfer of ownership immediately or 'lose the opportunity' then lose the opportunity.

We have sold and/or effected transfer or set-up of a wide range of businesses, including Bars, Restaurants, Retail Outlets, Motor and Market Traders, Radio Stations, etc. We love to see people 'succeed' in their endeavours, so don't let all of this advice and the warnings put you off - they are designed to highlight problem areas and help you realise your ambitions with the minimum of hardship. So use a Gestor.

Tip 2. Getting 'Stitched Up'.

There are many examples of being duped to greater and lesser extents. To keep this short, I have summarised the commonest examples below. You should always minimise your risks of this happening - else the financial and emotional hardship will quickly degrade your enthusiasm and enterprise.

In Tenerife, if you are not buying the freehold of the premises or Unit ('Local' in Spanish, pronounced Low Karl), then you will probably be paying a buying price called the 'Trespasso'. The Trespasso will be for the goodwill, internal fittings, plant and stock of the business. You will then rent the premises from a landlord, who will also require a deposit. These are all critical areas, and often where problems can arise.

Now go through my checklist below, noting all of the items. Some are relevant to renting premises only, or to existing business rather than new ventures, but they all eventually cause hardship.

1. Opening Licence - See it and get a copy. This should be available at the premises. If the actual licence, or a copy of the 'official application' for a licence cannot be shown - then the business you are about to buy does not exist (legally). Do not even consider buying a business that does not either -
   (i) Possess the full Opening Licence for its activity (Apertura) with its authenticity verified by a Gestor, or (ii) Show it's 'License Application' (Solicitud) has been made and paid for and that your Gestor both verifies the Application documents and contacts the Town Hall to obtain a documented account of the exact current status of the Application, why it has not yet been granted, and the likelihood of its success.
2. Rental Contract - You must get a copy of this. This will show (i) if the seller has the right to sell the lease, (ii) what the landlords claim to a percentage of the trespasso might be, (iii) how much longer it has to run, (iv) whether it really is renewable at the end of its term, (v) when and what any rent increases might be, (vi) whether you can sell the business on again, (vii) what fittings are included, (viii) who pays for what (refuse collection, rates, water, taxes, electricity, etc.) and of course, what other terms the tenant must comply with.
3. Trespasso - Negotiate this carefully. 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. Spending to much on the trespasso and not allowing sufficient working capital to fund the early trading months and incoming set-up expenses, kills many potentially good businesses.
4. Landlord - You must contact this person. It is a legal requirement that the landlord must be notified if the tenancy is changing. All to often, the seller will make excuses or otherwise make it appear difficult to consult the landlord, yet the landlord will be a significant factor in your new business. You will need to agree with the landlord any rental contract changes required and of course, get an exact agreement on the rent.
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 time scales involved and guarantee that the business is free of encumbrance, debts and liabilities.
6. Notary Office - DO IT If you don't 'Notarise' the signing of the contract and handing over of the money, (i) Your ownership could be challenged at a later date, (ii) You may not be able to claim tax allowances against your capital outlay. Notarising is not overly expensive.
7. Other. Get copies of any special licences (Music Licences, etc,) the UNELCO electricity contract, Basura (refuse collection) receipts and anything else you think relevant to the business

If you have any doubts, you should pay a professional organisation that know how to do it, to check out the business properly. The cost of doing this varies, you can email us for info. Beware of purchasing limited companies (S.L.) - and run a thorough check. Such entities can have all sorts of hidden liabilities. If you are buying a business, also check out the Business pages of tenerifeowners.com site.

Tip 3. Planning

Monthly	Euros
Rent	1,500.00
Community	110.00
Refuse	25.00
Licences	50.00
Insurance	20.00
Electricity	30.00
Water	15.00
My Salary	1,200.00
Employee	600.00
My Social	240.00
Social	90.00
Telephone	30.00
Printing	20.00
Accountant	100.00
Vehicle	100.00

If you don't have access to a computer and spreadsheet, do it manually. Try to predict every single expense you can, and then determine both the total capital outlay and what the monthly costs or outgoings will be. Obtain a figure for cost of sales and you can then work out what levels of monthly sales you will need to cover the monthly outgoings. You can then decide whether the level of sales required is a realistic possibility, easily expected. If you are happy with the basic arithmetic, then proceed to write down a complete business plan. Making early contact with an accountant can actually be very useful. The accountant will know, or find out, critical 'rules of thumb' figures for your chosen market sector, thus making planning easier. For example, the average 'cost of sales' for bars in Tenerife is about 40%. Thus, for a turnover of say 9,000 Euro's (comprised of beer, spirits, tobacco, crisps etc) your will have paid your suppliers 3,600 Euro's. This leaves a gross profit of 5,400 Euro's, from which you will be deducting outgoings such as those shown in the table. Email me if you need any assistance in finding the correct local figures for planning purposes or want to contact one of our accountants.

Tip 4. Legalities

Bear in mind that with the exception of a 'Residencia/Work Permit' (required by many foreigners) all of the other legalities must be complied with by everyone - not just you. Many people think that the bureaucracy is geared to just make life difficult for them, the truth is - we all live with it, Canarians, Spaniards, Brits, everyone. Most documents are necessary (in most of the world) to demonstrate that you -

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

So having, or obtaining the documents necessary to prove any of the above is normal. It is especially important if you are operating a business in a country where you are a foreigner. Don't skip details - if they relate to any of the above, they are not details - they are an important part of your life. Make sure you can show any document, e.g., Residencia, Licence, Statutory Payment Receipt (Social Security, Rates, Licence fees) if and when required.

Tip 5. Professionals

Don't be shy of consulting good professionals or paying reasonable professional fees. I will only ever recommend that you use Canarian/Spanish Lawyers/Accountants/Gestors. 'International Lawyers' and other 'International practices' are wholly unsuitable, and rarely know the intracacies and implications of the various 'Canarian variants' of Spanish law.
Most of them are a gold mine of information and only to pleased to give sound advice. Remember, they have seen it all before, many a dream shattered, and, many a fortune made. Don't use a lawyer to fight a court case, use him to 'avoid' a court case, by consulting with him early when a problem arises. 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 Tenerife than most places. We advise clients to use a specific professional based on the 'problem overview' the client gives us, steering them to competent people we know are experienced in frequently dealing with that particular problem. If you are unsure who to use, feel free to email Eurosol and I will suggest a professional appropriate to your problem.

Tip 6. Capital

Use your capital wisely and remember my previous words regarding high trespasso's. It is pointless spending almost all of your capital on purchasing the business, if you cannot sustain the incoming set-up costs and possible low initial turnover. Some funding for the first few months trading is essential, try to predict every bill you will receive and other eventualities in your business plan.

Tip 7. 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 (either rapidly increase your capabilities look into something else). Verbal recommendations in Tenerife can make or break a business - forget the FAST BUCK, long term this never works. No matter who you are providing a service to, whether it be tourism directly, or the local business/residential population, offer a good service at fair prices and word will spread. If you are patient and steadfast you will succeed.

I don't need to wish you good luck, because planning, research, and a bit of determination work better every time.