Starting a business in Spain

Every year thousands of small businesses are launched in Southern Spain often by individuals pursuing a dream of freedom from 9 to 5 employment. This article looks at some of the main considerations and decisions involved bringing that dream to successful reality.

Business formation

To gain respectability and keep within the laws on tax and employment it is vital that the new business be given a proper legal basis. Usually this boils down to a choice between incorporating the business as a limited company (S.L.) and setting up as self-employed (autonomo) or partnership (Sociedad Civil). Chosing autonomo or partnership will be administratively easier and cheaper and, for a simple business start-up, perhaps the obvious choice. Where there are good reasons for setting up a company, such as the involvement of outside investors or to save tax where income is expected to be high, expect to pay at least 1,000€ in set-up costs. When your new business is an offshoot of an existing overseas business or is going to be international in scope you could consider offshore or subsidiary company structures, but seek professional advice first.

Other advice on this site:   Autonomo Guide

Getting registered

There are a few separate registration steps like signing up for tax and social security, obtaining an opening licence from the Town Hall and setting up the limited company where appropriate. Take advice very early on about how all of this will affect your particular business because for some businesses it will be straightforward and others a bureaucratic minefield. If your business is going to be one of the more complex ones you will need to allow plenty of time for this phase, get good professional guidance and allow plenty of room in the budget for unforeseen expenses relating to, for example health and safety. Some factors which add to the complexity of registering a Spanish business are:

  • - Size of turnover
  • - Number of staff employed
  • - Whether a limited company
  • - Plan to serve food or drink or offer accommodation
  • - Involvement in a heavily regulated trade or profession
  • - Premises open to the public

Premises

Depending on the type of business, finding the right premises can be the crucial but it makes sense to play conservative. Until you are really sure that your business is going to have a profitable future it may be worth trading down to a low rent area or smaller premises or even dispensing with premises altogether if the business allows.

Remember Spain is in the grip of a property crisis, particularly in respect of commercial premises, so bargain very hard. Be wary of renting any space that requires altering or fitting it out to make it useable; these reforms will almost certainly cost more than you think and are sunk costs, unrecoverable should the business fail. Finally take legal advice to ensure the lease does not bind you to any expensive obligations or time periods.

Staff

Although wages for most lines of work are not unduly high in Spain, care must be taken not to take risks in over-staffing early on. The employer has to pay high social security costs and once an employee has worked for over a year they earn rights to severance pay. Again the message is to play conservative and not take on too many obligations until you are sure there are sufficient revenues to justify the expense of hiring more staff.

Generating business

Without the benefit of being established and not having had the chance to build a reputation by word of mouth, most new businesses struggle to generate income during the early days. This is a big topic to cover in a single paragraph but, from my recent experience, I would say:

- The internet is more powerful and pervasive in marketing terms now than it was even just a couple of years ago. Even if you are not IT-orientated, you should learn the skills to build an internet presence or employ someone to help you.

- Begin promoting yourself in a variety of ways: print advertising, online, leafleting, sponsorship, live events and demonstrations. See what methods work best and then concentrate your efforts and resources around them.

- Be wary of the “big splash” approach – throwing everything into an expensive launch which generates a first rush of business you are not able to cope with followed by a fall-off in trade. A slow, steady build-up of business might be better until you have all the wrinkles ironed out of your service or product delivery. Really concentrate on the customers you have and allow positive word of mouth to build.