Honduras - Gobierno De La República de Honduras (Government of Honduras)

Buying or starting your own business

 

“The trouble with retirement is that you never get a day off.” – Abe Lemons

 

"Starting a business is easy, It's succeeding that is difficult." - Chas

 

Why on earth would you listen to me?

To even take this chapter seriously you need to know a bit about my background. You have a right to call into question my knowledge and experience to be giving any advice on this subject. I hope by explaining my own experience plus my 17 years on the island I can convince you that you need to think through starting a business here thoughtfully, with lots of research, and most important of all rationally. I use the word rationally very deliberately as I have seen many people carried away with their dream of living on an island bar etc.

 

I have started multiple businesses in the USA. Some were very successful and some spectacular failures. It is only through failing that we gain knowledge. I was a computer creature of the late 90s during the "dot com" years and the beginning of the internet craze. They were exciting and heady days where everything the internet touched seemed to turn to gold. Four of us started a company and a year later it was on the cover of Forbes magazine. 18 months later the last fragments were bought at a bargain price by Microsoft as the market collapsed.

 

I worked in the franchise industry where I learned a lot about the difference between a successful business and a failing one. Since in a franchise you are buying a proven business strategy where the methodology is dictated in manuals in minute detail a particular location should show the same profit regardless of any other factor. However time and time again I have seen that the owner is the most important factor. I have seen people buy businesses with 2 million in revenue only to watch it shrink 80% in a few months and contrariwise I have seen people buy a bankrupt business and turn it into a cash cow.

 

I tell you this simply to express that I do have some knowledge of business in general and experience in starting and growing business from scratch to success.

On selling and buying businesses

I made the personal decision when I became a realtor that I could not ethically take both sides of a deal and still feel like I was truly representing my client. Similarly, I have gone out of my way to avoid clients who want to buy a business on the island. I only work with them if there are some physical assets in the company that give the deal some tangible value.

 

Let me be very clear that I am not stating that businesses here are not worth the money. It is a personal decision on my part that unless I can see that buyer has the experience and has done their homework I would prefer another agent to handle it.  It is hard enough to start a business in your own country and make it work add the difficulty of a foreign language and different cultures and that makes it a good deal harder. In general most of my clients are also my friends and I want to be able to meet you in a bar, look you in the eye, and know I did right by you.

 

Let me give you a few examples that I have seen buyers do that make me wary. I say buyers deliberately as some of these people were clearly warned by their agents and others but ignored good advice to follow their dream.

 

  1. One lady spent $70K to buy a restaurant even though she was told clearly that the lease was up in less than a year and would not be renewed. So within a year, she was told to leave at which point she realized that a lot of the stuff in the restaurant was not included in the sale. She had not even done a proper inventory. So she lost 70K in a single year.

  2. I have seen so many bars and restaurants fail in West End. I cannot count them. I could probably name 2 or 4 for every available location on the main street. A large number of these people had never run a company before, never mind a restaurant which is an extremely difficult and demanding business. Some had but very few. None seemed to know how razor-thin the margins could be and lots of them did not realize we had a slow season of several months and didn't make it through that part of the year.

  3. Add to that the work-life balance did not meet their expectations. They came to Roatan to semi-retire and found themselves working twice as hard as they did back home for half as much money. Remember you are competing against a workforce where the minimum wage is around $250 a month.

  4.  I have seen people hand me projections on their future income stream from their planned business and laughed out loud. When I delved into the figures there was no foundation to them and/or they were based on a complete lack of local knowledge.

  5.  I have seen people buy a business after being told that the official books were just for the tax department and that they would be able to take plenty of cash straight out of the business to live. They were lied to and they of course closed down when they could not live on the income.

  6. Another person bought a bar and it was doing well but as soon as he bought it the previous owner opened a bar down the street and all their clients followed. He didn't have a non-compete clause.

  7. It is not uncommon for people to have rents raised if their business does well. Sometimes that can force the business to close or move to a less desirable location.

 

Employees are your most important asset

I cannot emphasize the importance of this subject enough if you are buying a business the current staff are the most important non-tangible asset. The most important aspect of a business you are creating or buying unless you are the sole employee is your staff. Your staff are your representatives to your clients, they are the storehouse of all previous experience in the business and hopefully, they are a known factor both reliable and trustworthy. 

 

I can't believe I am writing this down but it needs saying clearly that if you buy a business then your staff are your instructors for the first month or two. Not the other way around. I recently saw a business purchased where the new owner immediately came in, fired a couple of them, and put the others on notice that there was a new boss in town. Needlessly to say the business has collapsed already.

 

Talking about employees before buying you should make yourself familiar with the fun and extraordinary laws that employers have to follow in Honduras.

 

Labor laws

  • The probationary period is 60 days after that they are fully employed with all benefits,

  • Long shifts require heavy overtime pay as does holiday pay.

  • The labor benefits to which every worker is entitled are advance notice, severance pay, vacations, the thirteenth and fourteenth months of proportional salary. Also, the vacations in case they have not enjoyed them. The worker gets all these rights when he is fired from his job. If he quits he loses them.

  • You pay an extra month's salary in June and December “Aguinaldo”. Every 6 months you need to pay your employees an extra month. Yes, you heard that right. There are 6-day weeks but 14 months in the Honduran work year

  • Mothers can take up to 10 weeks at full pay, 4 weeks before birth, and 6 weeks after birth

  • 10 paid days leave a year plus 11 paid public holidays a year

  • Sick employees can take up to 26 weeks a year on 66% of their pay. But if the employee is in hospital with no dependents, then they are entitled to 100% of their pay. Sick pay is split evenly between the employer and the state.

 

Those are just some of the laws. If you want to run a business read up on them before you start.

 

Some thoughts to go along with these laws. The longer a person is in service with you the bigger the payout you will have to give him when they leave. Again your accountant can explain the details but suffice to say after a few years if you don't plan you could have an employee you don't have the cash flow to fire as it may cost you many thousands of dollars to pay out their benefits. The labor board sides with employees unless they have signed airtight contracts. To remedy this situation a lot of companies hire people on 1-year contracts and technically fire and rehire them every year paying them all the benefits they are due so they do not carry over into the next year. Most employees are OK with this as it gives them a lump sum at the end of their contract. 

 

Another thing to think about is that Honduras is not a first-world country and they have not grown up in the same culture with the same service ethos. It may take a lot of training to get them to where you want them to be and that training makes them more valuable to you.

 

Be aware that how they get to work is important. Some have to travel a long way and if they don't have their own transport they are at the mercy of taxis. I have known employers to help good employees buy scooters to get them to work on time. If they aren't able to get you via a reasonable route then they will be spending a lot of their wages on transport. West Bay is particularly bad in this regard.

 

The cost of living is far higher here than on the mainland and so are the wages. I know sometimes people earn 50% more than they would do in similar jobs on the mainland. So you need to pay them accordingly.

 

I have spent several paragraphs hammering home the simple fact that good people are hard to find so if you find them do your best to keep them. The extra money you spend keeping them will be far better spent than searching, retraining, and repeating the same cycle. There definitely seems to be a correlation between the successful business I know here and the length of time staff have been with them.

 

Let's talk about how to set up a business and then about buying one.

 

Starting a business

Creating a business on Roatan is incredibly easy. Technically you should be a resident but I know non-residents that own successful businesses. Your residency should allow you to run a business. You aren't supposed to get a retirement residency then work but many people do. 

 

If you have read a bunch of my articles you will start seeing a theme. Get yourself a good accountant/lawyer. My accountant is also now a lawyer and he makes my life simple. He takes care of everything for me.

 

There are few right ways to do things in Honduras and thousands of wrong ways. In any developing country it matters greatly whom you know and the contacts you make. If you try and do things yourself your will probably end up costing yourself more money than hiring an expert. The right way is to get recommendations from a bunch of people who agree that this is the person to get it done. Then pay them to do it. Fees here are not exorbitant like other countries. However, your time is valuable. There are people here who are just paid to wait in lines at banks to make deposits etc because you could spend 3 hours in a bank and your day is wasted. Meanwhile, the people who know how to get things done have been invited to a different line and were out in 10 minutes. 

 

Don't work harder, work smarter. That is even more true here than elsewhere. So what do you need to start a company?

 

  • Copy of corporation documents.

  • Copy de RTN. "Registro Tributario Nationa"

  • Environmental inspection (Inspeccion del UMA).

  • Copy of rental contract (contrato de arrendamiento).

  • Copy of property tax payment. (impuestos de bien inmueble).

  • Corporate local taxes (impuesto vecinal de la Sociedad).

  • Personal local taxes for legal representative (Impuesto vecinal del representante legal).

  • Register at chamber of commerce ( Registro de camara de comercio).

  • Fire department inspection (inspeccion de bombero).

  • Written petition (solicitud escrito)


Explanation of the documents and how to get them

  1. Copy of corporation documents. The lawyer can make up the corp documents you will just have to tell him if you are a sole proprietor and person who inherits etc. 

  2. Copy of RTN If you have been here for long you will notice that you are constantly asked if you want your receipt to show an RTN number To claim an expense for your business it has to show that you bought/spent it etc. This means your RTN has to be printed on it. Otherwise no deduction. 

  3. Environmental Inspection. It depends on your planned business but you may need an Environmental report for your office or for the type of work you do.

  4. Rental Contract. You didn't need all this paperwork a few years ago but the tax department got very serious and decided that there were an awful lot of corporations just hanging around and started wondering what they were up to. So these days you need to have some kind of office or in the case of a bar etc. a location.

  5. If you own property for example you are running a hotel. Are the taxes on it paid?

  6. Corporate taxes. At first, you won't owe any but these taxes are prorated over the year based on last year's earnings so you will be paying payments normally quarterly through the year.

  7. Personal income taxes. Obvious.

  8. The fire department will need to check that you are going to cook food not people and in a safe manner.

  9. Written petition to open a business

 

It seems complex but really what your representative will need is your ID passport/Residency card, some cash for all the fees, and their fee. Your signature on a bunch of papers and then your application will be in process. You can start your business. All done. Not hard at all. You just started a business in Roatan.

 

Strong suggestions on running your business

 

If you are not in the thick of it and running it yourself then it will fail. The dream to own a bar, sit on the beach all day and enjoy your retirement while the money rolls in is just that, a dream. First profit margins are not good enough for you to hire a talented/honest manager and pay yourself. Second, such people are really rare on both counts. If you are not there to oversee your employees then nothing will be done and profits will mysteriously disappear.

 

You can make money here and be successful.

 

Yes, I have been negative but that is because I see my role as to help you in any way. I have friends with very successful businesses here. I interviewed a bunch of them to get extra notes for this article. They are all good business people and have a good life here but they also work hard and keep tight control over their business at all times. I have one friend who arrived just over a year ago and he already has two successful businesses but he has a track record of creating and running businesses around the world. In the USA 20% of businesses fail in the first year and 50% fail or falter by the 5th year. I am here for the long term and I want you to be here with me.

 

So with all that negativity over with let me give you some strong suggestions. They won't make you succeed but they may help you not fail.

 

Be smart

Here I go again. Hire a good account and lawyer. You do not want your business to fail because your employment contracts were nullified and you suddenly owe thousands or you didn't file papers in time and you need to pay fines. Put them on retainer. The peace of mind will be worth the expense.

 

Research

Do your research. This is a friendly island. It amazes me that when someone plans to open something as common as a bar or a restaurant yet they act as if what they are doing is secret and other people knowing is going to affect the outcome. It isn't. Get over yourself. Maybe you have an interesting idea or novel approach. Great but don't assume that will work ensuring your success. You know what the best way to find out about the bar industry is and how it works. Go and talk to the owners of the bars. Talk to the bartenders. Talk to the people who work there. Most of them will be only too willing to tell you all of their problems and woes. You will gain a lot of knowledge from them. Find out about the local suppliers and talk to them. Talk to the customers. Talk to anyone you can. Unless they are having a bad day you are more likely to have your ear talked off rather than them being upset at you. Be humble, do not think you know better. They will be looking at you as one more new bar that opens and closes in the blink of an eye.

 

Buy more than intangible assets

If possible, own the property where you set up shop. I have seen lots of businesses be squeezed out by rent increases. The more successful they and the area they operate in become the higher the cost of doing business. If you don't get a really good lease agreement with the amounts spelled out many years into the future you could be in trouble and even then you are dependent on the other party sticking to their agreements. Better to be in control of your own situation.

 

Relax

Don't be in a hurry. Your idea might be new but it does not mean others haven't thought of it. In West Bay we had no pizza place. A business opportunity. In a year we had 5 different places to buy. I have never seen a business opportunity here that was so brilliant it was worth rushing over and making a mistake. If somehow you miss it then you missed it. Use that awful phrase to comfort yourself. "It wasn't meant to be anyway."

 

Do the math!

Generally, as a rough guide, the business revenue should be able to pay a purchase off completely in 3 years and hopefully less. Not the hard assets, just the cost of the business, the intangibles. Don't trust what you are handed, dig in and review your major costs, RECO, employees, etc. Talk to the people in the local area. Are they selling or trying to rent for a reason that you are not being told? It always floods in the wintertime, no one trusts the landlord, or it's dead in the slow season. Again be friendly and you'll be amazed at what people will tell you. 

 

Who is your clientele?

Be aware of who your clients are and when they are here. If you bought a business here and did not realize we had a slow season and that you have to save money to survive, then you have not done your homework. If you only serve cruise ship passengers at high prices and don't give locals breaks, then you will receive no customers when the cruise ships aren't here. You might as well close your doors. Remember also that cruise ships are not obligated to be here. Be it COVID, bad weather, or the like someplace better, we are at their mercy.  This is a story from many years back when I first arrived but it contains a valuable lesson. One of my friends bought into a scooter rental shop. He had years of business experience but shortly after taking over the shop we hit one of the longest rainy seasons on record. While listening to the rain smash down on his roof with yet another day without one rental he realized he would have to diversify to survive. He came up with the idea of renting out DVDs and DVD players. (OK yes I just dated myself). It was a brilliant idea because when people were stuck in their hotels because of rain they wanted another form of entertainment. So he had two separate and opposing streams of income. Then when DVDs went the way of the dinosaurs he again pivoted his store to sell another staple of human need. Alcohol. 


 

Try to be original in some way

Don't repeat what everyone else is doing. Have a novel perspective to offer or a service we don't have yet. Taco Tuesdays are not it. A friend of mine opened an Italian restaurant outside of West End but close enough to walk. He let people bring their own alcohol instead of selling it at inflated prices. People thought he was nuts and would lose out because of the lost profit on alcohol. They were wrong. In high season you have to book weeks ahead to get in now. The combination of freshly made pasta, good food, cheap alcohol, and great service made him so successful he's only open 5 days a week with a single sitting at night. He lives his life the way he wants to and he has hit the sweet spot as far as I am concerned on this island.

 

Have a good lawyer!

Never buy the actual company, only transfer assets to a new fresh corporation. You don't want to inherit any unknowns such as owed employee benefits.

 

I don't know what I am talking about!

The most important rule is that I am often wrong. So if you believe in yourself then go for it. Don't let anyone discourage you but still do your homework and hire a good…you know what I am going to say.

 

Lastly, some thoughts before buying a business.

When you buy a business you are buying 3 main things

  1. Any tangible assets they are selling with it. Property, cars, boats, etc.

  2. Their particular work methodology includes contacts, recipes, trained staff, (the most underrated asset), and the look and feel.

  3. Lastly, the goodwill they have engendered in the past has enabled them to gain repeat business. This is the most intangible asset you are purchasing and the easiest to destroy.

 

Ask yourself if you gave yourself the cost of the purchase price. Could you recreate the business for less money in a year or two? Is the leap forward that purchasing it will give you worth the cost? Again do the math.

 

Lastly, and this is so important if you do buy a business do not change a single thing in the way it is run for a good few months. Understand everyone's job and be able to do everyone's job. When you can do that, then introduce your mind-blowing changes but do not change the thing you just spent money on immediately after you bought it until you fully understand it or why oh why did you waste your money buying it?

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