We want to explain to you the importance of having got a grip on your business in Spain.
Is cash flow killing the business of your dreams in Spain?
Without profit there is no business- Sounds obvious? Not necessarily. Many businesses in Spain have very little in the way of management accounts. We once had two internal accountants, Debbie and Claire in my old company Comaskey Properties, that is how important it was to us.
We knew how much we earned, what the tax implications would be, whether or not a certain exhibition, collaboration or marketing strategy was worthwhile
It is stunning however how many businesses in Spain who were clearly making more money than us ultimately went bankrupt, just due to cash flow issues.
Are you thinking of opening your own small business in Spain?
If you are thinking of opening your own small business in Spain, our advice is to get this part of the business right, before worrying about logos, blog posts or the colour of the furniture. Here are some issues you may have.
1. You’re not tracking your expenses
We struggled with this back in 2002. All small firms do. We were earning decent cash but that amount was dramatically reduced by the end of the month. Where was the money going?
There are more businesses in Spain than you’re aware of that aren’t tracking their expenses like wages, social security, IVA payments etc. As many firms found out to their costs, if you’re spending more than your business in Spain is bringing in, you’re in trouble.
It’s so boring, going through statements, invoicing etc but it has got to be done. Don’t like this sort of task? Hire an account and explain to them that you want your list of costs itemised every month. You need to plug the leaks before you can move forward. Of course, Spanish Solutions as you’d expect can help.
2. You’re not doing your tax properly.
In Spain, one of your greatest costs and sources of frustration is tax. For cash flow reasons you must be aware of upcoming deadlines and meet with your accountant so that you can plan accordingly. Maybe even set up a second “tax” account in the bank that you know you can’t touch is a good idea.
You must talk to a tax advisor- A good one like 347 in Alcazares, our collaborators on these matters. They warn me in advance sometimes subtly, sometimes less so, to be careful if they feel it merits a warning. What a great safety net to have.
3. Credit card debt.
Credit card debt is a bad idea. That doesn’t mean that you shouldn’t have a business credit card on hand but it is a short term option, use it for convenience and try not to use it as a source of cash flow.
If like so many businesses in Spain, you’re drowning in credit card deb by using it recklessly then you’re ultimately spending a small fortune on interest. I’m not talking Amazon purchases here, I mean putting regular expenses on plastic, like mobile phones, utilities etc and not paying it all off by direct debit at the end of the month.
4. Late fees and juggling bills in your business in Spain
If you have not set up direct debits to ensure that all your monthly costs are paid, you should immediately do this.
The other reason you are running up late fees is that you don’t have the cash at the end of the month to keep your bills paid.
Maybe you can get rid of certain expenses- Personally, I’d rather cancel Netflix and keep my gym membership if that was a choice. There are similar decisions to make in your business environment.
5. You are not invoicing your clients in time
If you aren’t bringing money in, then how can you pay your expenses, wages and even yourself? Getting the invoices in front of your client is a key to survival in business, yet so many businesses in Spain are in no hurry. Maybe you don’t want to look desperate or pushy? Forget that, survival is based on you getting paid. Ask your accountant to reduce the time you wait for the bills to be paid- Cash flow and maybe your business survival depends on it.
6. Not negotiating
I can’t help it, I love negotiating everything. For example, I saved 22.50 euro in Millar last month and it felt like an incredible rush. I’m still bragging about it although out of embarrassment my wife left and sat in the car, mortified. People are afraid to ask for a discount because it looks bad or looks like they can’t afford to buy the TV or whatever it is.
This saving is sent straight to your bottom line though. The burger I bought with my 22.50 euro tasted delicious. Every Euro you save on your phone bill, wifi bill, rent and yes even that TV in Millar is another euro you have in your pocket. If you are nervous, start small. Try to negotiate with the seller at the market, then use that exact same strategy with Movistar or Vodafone. It works.
7. Keeping up with the Garcias
Just because your next-door competitor recently bought a swanky new BMW, a new office and has the latest I-phone 150, does not mean you have to. None of that means that her business is better than yours. Clients tend not to be impressed but your financial situation will suffer most.
Your competitor may have dumped all their funding into those expensive materialistic things, so they are not reinvesting in the real keys of their business.
Used furniture is grand; once a client sits on that sofa, it’s second hand anyway. If I was your client, I’d rather get a better deal, than meet you in a fancy office.
8. No emergency fund
You should always, in theory at least, have enough cash that you can survive for 6 months, without any money coming in. Easy to say of course. Setting aside a little cash is recommended not just for business owners, but pretty much everyone.
Experts recommend that you automate it and have a direct debit going to another bank account- (separate to the Tax account) and watch it build up without you even thinking about it. The dream number is 10% PM, if you can do it without too much stress.
9. Outsourcing staff
Wages are not that high in Spain compared to back home but the social security costs are high. Hiring the wrong people, and I can speak from experience, is expensive. It means that you have to keep training new employees over and over again plus it is expensive to get rid of them when you finally admit it is not going to work out.
Independent outsourced staff can help in so many ways. You can pay a guy to do occasional selling, IT issues, translations in the notary, blogging, even accountancy. If you have people doing these jobs, you can concentrate on doing what you like best, while getting maximum output from your outsourced team. They are not tied to you, and you are not married to them.
10. Disorganised accounting
This is easy to fix. You should hire a bookkeeper, CFO or business accountant as well as your tax accountant. The bookkeeper should know which deductions you can claim, are there cash flow issues, are there too many debtors/creditors? Most of the time they can be hired part-time and this is a valuable expense that will earn you a lot more than you pay.
11. Bad financial advice in your business in Spain
Most successful businesses in Spain hire a professional who can keep you updated on the latest tax regulations and help with cash flow. They see things and problems before they even happen. You can take better decisions knowing that you are on top of your finances.
Finding the right person for this job is so important. Talk to us, talk to other successful businesses around the area, but do start the process. If the advice comes unsolicited, it is probably worthless.
347 offer consultations with our clients online for around 70 euro depending on your needs. They will knock this off your fees should you decide to use them for your tax returns. Ana in Spanish Solutions will sit in on the meeting and help with translations if needed and just make sure you understand the process and the proposals. These guys are excellent!
Talk to us here if we can help with the introduction- this may be the best 70 euro you’ve ever wasted!!