When buying a business in Spain you should review the business accounts for the last three years, decide how to structure the business, review the company’s tax position and be aware of various other market considerations.
A warm climate, beautiful views, great food and a steady source of income to support your lifestyle are things that many of us aspire to. A potentially viable means of achieving all of the above in one fell swoop is to open a business on the Spanish coast. During the ‘80s and ‘90s opening a bar was considered a likely route to success. As we begin to recover from the economic crisis we have noticed that the Bed and Breakfast is the business that many Brits are favouring.
Tourism is one of Spain’s major industries and more people visit Spain on holiday from the UK than from any other country, so on the face of it a B&B is an excellent choice. If you do not have experience in running a hotel or similar establishment, and even if you do, when buying or opening a business in Spain it is essential to conduct thorough due diligence before you make any payment or enter into any agreement at all.
What are the main points to consider when buying a business in Spain?
- If you are buying a going concern, engage a firm of Spanish accountants to analyse the last 3 years’ accounts. If the business does not have at least 3 years’ accounts then query whether it has any value at all. Your accountant will be able to track receipts through the bank accounts of the business. It is not sensible to rely on promises of cash receipts. Be certain of the value of the business. It is easy to overpay.
- Take independent legal advice in relation to the structure that you will use to run the business. Will you be a sole trader, or perhaps a partnership? Will you form a limited company for tax reasons, and/or to limit your own liability? Remember, you will be providing services to individuals. While it is essential to contract public liability insurance, it may be wise to avoid personal liability altogether.
- Before buying or opening a business in Spain, consider carefully your tax position. If you reside in Spain then you will become liable to tax in Spain for all of your worldwide assets.
- If buying a going concern involves purchasing a property, which is likely, think about whether your business will buy the property, or whether you will buy the property in your own name and rent part/all of it to your business. Either an independent Spanish lawyer who advises on tax, or a Spanish accountant, will be able to advise you well.
- Before buying or opening a business in Spain, consider the market that you are hoping to capture. Are you expecting to build on the reputation of the business to date, or is your idea to change the focus of the business and attract people visiting Spain for a particularl reason, such as fishing, or cycling, or another outdoor pursuit? Do your research to be as certain as you can be that your strategy is likely to succeed.
- Understand very well why the current owners of the business want to sell. There can be many reasons, but very often the main reason is that the business is not producing sufficient revenue. Again, be certain that the turnover figures presented to you by the seller are accurate.
- Whether you are buying a going concern, or buying a property with a view to using it as a B&B, above all else engage an independent lawyer to ensure that either:
- the current owners have full permission to use the property for that purpose and that you will be able to rely on that permission once you have purchased, or
- you will be able to make a successful application for permission to run a B&B at those premises. The process may well be longwinded and overly bureaucratic and may also be costly, but there is absolutely no substitute for this step.
- Whatever you do, do not invest your hard earned money without the certainty that you know precisely what you are getting yourself into. Buying a business in Spain or a Spanish property is a fairly straightforward step, as the seller will be more than happy to receive payment. Selling a property or business in Spain can often be very difficult indeed.
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So, in a nutshell, when buying or opening a business in Spain:
- Be obsessive as to the detail of the transaction.
- Be certain that you engage specialist, independent advisors.
- Understand each and every step before you take it.
- Move towards the dream of a business in the sun, but do so cautiously and competently with advice.
If you are considering buying or investing in a business in Spain and you would like to seek specialist advice, please be in contact with us. You can contact us by email at email@example.com, by telephone on 020 3478 1420, or by completing our contact form.
A version of this article first appeared in the Spring 2014 issue of A Place in the Sun Magazine