Roatan business

Buying or starting your own business on the island

 

Roatan business: Why on earth would you listen to me?

In Roatan, business can be quite challenging. To take this chapter seriously, you need to be aware of my background. You have every right to question my knowledge and experience when it comes to offering advice on this subject. My aim is to convince you that starting a business here requires careful consideration, extensive research, and, most importantly, a rational approach. I deliberately emphasize the need for rationality because I’ve witnessed numerous individuals getting carried away by their dreams of living on an island, such as owning a bar, without a solid plan.

I have launched multiple businesses in the USA, and my journey has encompassed both significant successes and spectacular failures. It’s through these failures that I’ve gained invaluable knowledge. I was deeply immersed in the world of computers during the late ’90s, the era of the “dot com” boom and the early days of the internet frenzy. It was an exhilarating and thrilling period where nearly everything touched by the internet appeared to turn to gold. Alongside three partners, I co-founded a company that, within a year, found itself gracing the cover of Forbes magazine. However, just 18 months later, as the market collapsed, Microsoft acquired the remaining fragments at a bargain price.

I also ventured into the franchise industry, where I gained profound insights into the distinction between a successful business and one that falters. In a franchise, you invest in a proven business strategy meticulously detailed in manuals. Ideally, a particular franchise location should yield consistent profits regardless of other variables. Nevertheless, time and time again, I’ve observed that the owner plays the most pivotal role. I’ve seen individuals acquire businesses with $2 million in revenue, only to witness an 80% decline in just a few months. Conversely, I’ve witnessed others purchase bankrupt businesses and transform them into lucrative enterprises.

I share these experiences with you to underscore that I do possess a considerable knowledge of business in a general sense, as well as hands-on experience in launching and cultivating businesses from the ground up, leading them to success.

 

On selling and buying businesses

When I chose to become a realtor, I made a personal ethical decision that I could not, in good conscience, represent both sides of a deal and still feel like I was truly advocating for my client. Similarly, I’ve gone out of my way to avoid working with clients interested in buying a business on the island unless there are physical assets within the company that provide tangible value to the deal.

I want to emphasize that I’m not suggesting that businesses here lack value or aren’t worth the investment. It’s a personal choice on my part that unless I can see that a buyer possesses the necessary experience and has done their due diligence, I would prefer to refer them to another agent. Starting a business in your own country is challenging enough, and when you factor in the additional complexities of a foreign language and different cultures, it becomes even more daunting. Most of my clients are also my friends, and my goal is to be able to meet them in a bar, look them in the eye, and know that I’ve done right by them.

Allow me to share a few examples of situations that make me cautious when dealing with buyers. I use the term “buyers” deliberately, as some of these individuals were clearly given warnings by their agents and others but chose to ignore sound advice in pursuit of their dreams.

One lady spent $70,000 to purchase a restaurant, despite being clearly informed that the lease would expire in less than a year and would not be renewed. Within a year, she was asked to vacate the premises, only to realize that many of the items in the restaurant were not included in the sale. She hadn’t even conducted a proper inventory, resulting in a $70,000 loss in a single year.

I’ve witnessed numerous bars and restaurants fail in West End. The count is too high to keep track of, with several failures for every available location on the main street. Many of these entrepreneurs had never managed a business before, let alone a restaurant, which is an incredibly challenging and demanding industry. Very few had relevant experience, and most were unaware of just how razor-thin profit margins could be. Additionally, they often didn’t realize that Roatan experiences a slow season lasting several months, and many couldn’t weather that part of the year.

To compound matters, their work-life balance didn’t align with their expectations. They came to Roatan with semi-retirement in mind but found themselves working twice as hard as they did back home for half the income. It’s crucial to remember that they were competing against a workforce where the minimum wage hovers around $250 per month.

I’ve encountered individuals who handed me income projections for their planned businesses that seemed laughable. Upon closer examination, these projections lacked a solid foundation and were often based on a complete lack of local knowledge.

Moreover, some people bought a business after being assured that the official books were solely for tax purposes and that they could easily withdraw ample cash from the business to sustain their livelihoods. Unfortunately, they were deceived, and they eventually closed down when they couldn’t survive on the income.

In one instance, an individual purchased a bar that was doing well, but the previous owner opened a competing bar down the street, leading all the clients to migrate to the new establishment. The buyer didn’t have a non-compete clause in place.

It’s not uncommon for business owners to face rent increases if their business performs well. In some cases, this can force a business to shut down or relocate to a less desirable location.

 

Employees are your most important asset

I cannot overemphasize the critical importance of this topic: when buying a business, the existing staff members are the most vital intangible asset. The single most significant aspect of a business, whether you are establishing it anew or acquiring an existing one, unless you are the sole employee, is your staff. They serve as your representatives to your clients, hold the reservoir of all previous experience within the business, and ideally, they are a known quantity, both reliable and trustworthy.

I find it somewhat surprising that I have to articulate this point, but it must be stated unequivocally: if you purchase a business, your staff should be regarded as your instructors during the initial month or two, not the other way around. Unfortunately, I recently witnessed a business acquisition where the new owner promptly terminated a couple of employees and put the remaining staff on notice, asserting their new authority. Regrettably, the business has already crumbled as a result.

When it comes to employees, prior to making a purchase, you should acquaint yourself with the unique and stringent labor laws that employers must adhere to in Honduras.

 

Labor laws

The probationary period spans 60 days, after which employees are considered fully employed and entitled to all benefits. Extended work shifts require substantial overtime pay, as do holidays. The labor benefits that every worker is entitled to include advance notice, severance pay, vacations, the thirteenth and fourteenth months of proportional salary, and unused vacation compensation upon termination. If an employee resigns, they forfeit these rights.

Additionally, you must pay an extra month’s salary in June and December, known as “Aguinaldo.” Every six months, you are required to provide your employees with an extra month’s pay. That’s right, there are 6-day workweeks but 14 months in the Honduran work year.

Mothers have the option to take up to 10 weeks of fully paid maternity leave, with 4 weeks before birth and 6 weeks after. Employees are entitled to 10 paid days off per year, in addition to 11 paid public holidays. In the case of illness, employees can take up to 26 weeks off per year at 66% of their pay. However, if an employee is hospitalized with no dependents, they are entitled to 100% of their pay. Sick pay is typically divided evenly between the employer and the state.

These are just some of the labor laws in Honduras. If you plan to operate a business, it is crucial to familiarize yourself with these regulations before you begin.

Here are some additional considerations to keep in mind regarding these laws:

1. As employees spend more time with your company, the potential payout upon their departure increases. Without proper planning, you may face significant financial challenges when it comes time to terminate an employee, as it could cost you thousands of dollars in benefits. The labor board tends to favor employees unless they have signed airtight contracts. To address this issue, many companies hire employees on 1-year contracts and technically terminate and rehire them each year, providing them with the benefits they are owed to prevent them from carrying over into the next year. Most employees are agreeable to this arrangement, as it results in a lump-sum payout at the end of their contract.
2. Honduras is not a first-world country, and employees may not have grown up in a culture with the same service ethos as in more developed nations. Extensive training may be necessary to align them with your expectations, but this investment can significantly enhance their value to your business.
3. Consider the transportation challenges your employees may face. Some may have long commutes and rely on taxis if they lack personal transport. In some cases, employers have assisted dedicated employees in acquiring scooters to ensure punctuality. Difficulty in accessing work can lead to a significant portion of their wages being spent on transportation, particularly in areas like West Bay.
4. The cost of living in Roatan is higher than on the mainland, and wages reflect this difference. In many cases, employees may earn up to 50% more than they would in similar positions on the mainland. It’s important to compensate them accordingly.
5. Finding and retaining good employees can be challenging in Roatan, so when you do find them, it’s essential to do your best to keep them. The additional expenses incurred in retaining valuable employees are often more cost-effective than the recruitment, training, and turnover cycle. Successful businesses in Roatan often have long-tenured staff, indicating a positive correlation between employee retention and business success.

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

 

Starting a business

Establishing a business on Roatan is remarkably straightforward. While technically, you should be a resident, I know of non-residents who own successful businesses. Residency should ideally permit you to operate a business, although it’s worth noting that obtaining retirement residency and engaging in work is not the official protocol, yet many people do so.

If you’ve been following my articles, you’ll notice a recurring theme – the importance of securing a competent accountant or lawyer. In my case, my accountant has also become a lawyer, and he simplifies my life by handling all the necessary paperwork and procedures.

In Honduras, there are often very few definitively right ways to do things and countless wrong ones. In any developing country, who you know and the contacts you establish can have a substantial impact. Attempting to handle things on your own may end up costing you more money than hiring an expert. The proper approach involves seeking recommendations from multiple sources to identify the right person for the job, then compensating them to take care of it. Fortunately, professional fees in Honduras are not exorbitant compared to other countries. Your time is valuable, and there are individuals here who are hired solely to wait in lines at banks to make deposits, allowing you to save hours that would otherwise be wasted. Meanwhile, those well-connected individuals who know how to expedite processes have been ushered to a different line and completed their tasks in just ten minutes. The key is not to work harder, but to work smarter, a principle that holds even more true here than elsewhere.

So, what do you need to start a company? Here’s a list of essential requirements:

1. Copy of corporation documents.
2. Copy of RTN (Registro Tributario Nacional).
3. Environmental inspection (Inspección del UMA).
4. Copy of rental contract (Contrato de Arrendamiento).
5. Copy of property tax payment (Impuestos de Bien Inmueble).
6. Corporate local taxes (Impuesto Vecinal de la Sociedad).
7. Personal local taxes for the legal representative (Impuesto Vecinal del Representante Legal).
8. Registration with the chamber of commerce (Registro de la Cámara de Comercio).
9. Fire department inspection (Inspección de Bomberos).
10. Written petition (Solicitud Escrita).

By adhering to these requirements and seeking professional assistance, you can streamline the process of starting a business on Roatan and ensure a smoother journey toward success.

 

Explanation of the documents and how to get them

Obtaining a copy of corporation documents is a straightforward process. Your lawyer can create these documents for you, and you’ll need to provide information such as whether you’re a sole proprietor or if there are multiple owners, along with details about inheritances, if applicable.

The RTN (Registro Tributario Nacional) is a crucial component of business operations in Roatan. You’ve likely encountered requests to include your RTN number on receipts. To claim expenses for your business, these receipts must display your RTN number, allowing for deductions. Therefore, it’s important to ensure that your RTN is consistently printed on relevant documentation.

The necessity for an Environmental Inspection depends on the nature of your planned business. Certain businesses may require an environmental report for your office or the specific type of work you intend to undertake.

In recent years, the tax department has become increasingly vigilant, prompting the need for additional paperwork like rental contracts. This has been a response to the realization that numerous corporations were in existence without clear purposes or activities. Nowadays, having some form of office or a designated location is typically a requirement for business registration. For example, if you own property and are running a hotel, it’s essential to verify that property taxes are up to date.

Corporate taxes may not initially apply, but they are prorated throughout the year based on the previous year’s earnings. Consequently, you will make quarterly payments during the year.

Personal income taxes are a straightforward and expected aspect of business operations.

The fire department will conduct an inspection to ensure that your business premises are safe for the intended activities, particularly if you’re involved in food preparation.

A written petition is part of the process for opening a business, but with the assistance of your representative, it becomes more manageable. Your representative will need your ID, passport, or residency card, along with cash to cover the fees and their own service fee. You’ll also be required to sign various documents, after which your application will be in progress. Following these steps, your business will be up and running, and the process is far simpler than it may initially appear. Congratulations, you’ve successfully started a business in Roatan!

 

Strong suggestions on running your business

Running a business, especially in a place like Roatan, demands active involvement. The notion of owning a bar, lounging on the beach all day, and passively reaping retirement rewards is indeed more of a dream than a reality. Here’s why:

1. Profit Margins: The profit margins in many businesses may not be sufficient to afford hiring a talented and trustworthy manager while still providing a substantial income for yourself. In most cases, you’ll need to be hands-on to make the venture financially viable.
2. Scarce Talent: Finding individuals who possess both the necessary skills and honesty can be exceptionally rare. This combination is a precious commodity, and locating such individuals can be a daunting task.
3. Oversight: Without your direct involvement, it’s unlikely that your employees will operate the business to your standards. In such cases, profits may mysteriously dwindle as management and operational issues go unnoticed or unaddressed.

In essence, success in running a business on Roatan often hinges on your personal involvement and oversight, ensuring that the operation runs smoothly and profitability is sustained. The romanticized vision of a carefree retirement business is often at odds with the practical realities of entrepreneurship.

 

You can make money here and be successful.

Indeed, my intention is to provide you with practical insights and advice to ensure your success. While I may have sounded negative at times, it’s only because I want to help you navigate the challenges and realities of starting and running a business in Roatan.

I’ve reached out to friends who have thriving businesses here and gathered additional insights to share with you. These individuals are not only successful entrepreneurs but also lead fulfilling lives on the island. Their success stories are a testament to their hard work and meticulous control over their businesses. For instance, I have a friend who arrived just over a year ago and already manages two successful enterprises. His track record of creating and running businesses globally has certainly contributed to his accomplishments.

It’s important to keep in mind that entrepreneurship is challenging everywhere, and the statistics are telling – in the USA, 20% of businesses fail within the first year, and by the fifth year, 50% either fail or face significant challenges. I’m here for the long term, and my hope is that you’ll join me in building a successful and enduring presence on the island.

Now, with the more critical aspects addressed, let me provide you with some strong suggestions. While these won’t guarantee success, they can certainly help you avoid common pitfalls and increase your chances of thriving in the business landscape of Roatan.

 

Be smart

I can’t stress this enough: Hire a capable accountant and lawyer. You don’t want your business to stumble due to problems like voided employment contracts or overlooked filing deadlines that could lead to substantial fines. It’s prudent to retain these professionals, as the peace of mind they offer is a valuable investment. With experts by your side to navigate the intricacies of business operations and compliance in Roatan, you can protect your investment and ensure the seamless functioning of your enterprise.

Research

Extensive research is paramount. Roatan is a friendly island, and it surprises me when people plan to open businesses like bars or restaurants while behaving as though their ideas are top-secret and sharing them with others will affect the outcome. In reality, it won’t. It’s essential to get over any such notions. While you may have an interesting or innovative concept, never assume that alone guarantees success.

The best way to learn about the bar industry and how it operates is to engage with those who are already in it. Seek out conversations with bar owners, bartenders, and employees. Many of them will be more than willing to share their challenges and experiences with you. You can gain a wealth of knowledge by listening to their stories and insights.

Additionally, make an effort to connect with local suppliers and understand their offerings. Talk to the customers who frequent the bars you visit. In essence, engage with as many people as possible. Unless they’re having a particularly bad day, most individuals will be more inclined to share their wisdom and experiences with you rather than be upset.

Maintain humility throughout this process and avoid assuming that you know better. Keep in mind that you’ll be viewed as yet another new bar that opens, often only to close shortly afterward. By actively seeking advice, insights, and guidance from those with local expertise, you can enhance your chances of building a successful and lasting business in Roatan.

 

Buy more than intangible assets

Whenever feasible, consider owning the property where you establish your business. I’ve witnessed numerous businesses forced out of operation due to escalating rent costs. As businesses grow and the areas they operate in become more successful, the overall cost of doing business tends to rise. Unless you have a meticulously crafted lease agreement with future rent amounts clearly outlined for many years ahead, you could find yourself in a precarious situation. Even with such agreements, you’re still dependent on the other party honoring their commitments.

By owning the property, you gain control over your own circumstances and reduce the risk of being adversely affected by rent increases or lease disputes. It provides stability and security for your business in the long term, allowing you to focus on growth and profitability without the uncertainty of changing rental terms.

 

Relax

Take your time and exercise patience in your business endeavors. While your idea may seem innovative, it’s essential to remember that others may have also considered it. A prime example is the situation in West Bay, where there was initially no pizza place, representing a clear business opportunity. Within a year, however, five different pizza establishments emerged. This scenario illustrates how quickly competition can develop in Roatan.

Rarely have I witnessed a business opportunity in Roatan so extraordinary that it warranted rushing into it, potentially making costly mistakes. If, by any chance, you miss out on an opportunity, accept it with the understanding that it wasn’t meant to be. This perspective can provide solace and help you maintain a patient and thoughtful approach to business in Roatan. Rushing into decisions can often lead to unforeseen challenges and complications, so taking your time to assess and plan is typically a wiser strategy.

 

Do the math!

Who is your clientele?

Be aware of your clients and their schedules. If you’ve purchased a business here without realizing that we experience a slow season and require savings for survival, then it’s clear that you haven’t done your homework. If you exclusively cater to cruise ship passengers at high prices and neglect to offer discounts to locals, you’ll find yourself without customers when the cruise ships aren’t in port. In such a scenario, it might be best to consider closing your doors. Additionally, it’s essential to remember that cruise ships aren’t obligated to visit. Whether it’s due to factors like COVID, unfavorable weather conditions, or choosing a different destination, we are at their mercy.

This story dates back to when I first arrived, but it carries a valuable lesson. A friend of mine purchased a scooter rental shop. Despite having years of business experience, shortly after taking over the shop, we experienced one of the longest rainy seasons on record. As he listened to the rain pounding on his roof day after day without a single rental, he realized he needed to diversify to survive. He came up with the idea of renting out DVDs and DVD players (yes, I just revealed my age with that reference). It turned out to be a brilliant idea because people stuck in their hotels due to the rain were looking for alternative forms of entertainment. This allowed him to establish two separate and complementary streams of income. When DVDs became obsolete, he adapted his store once again to meet another fundamental human need—alcohol.

 

Try to be original in some way

Avoid following the crowd; instead, bring something unique or offer a service that’s currently unavailable. Taco Tuesdays won’t cut it. A friend of mine decided to open an Italian restaurant just outside West End, close enough for patrons to walk to. What set his establishment apart was his decision to allow customers to bring their own alcohol rather than selling it at inflated prices. Many thought he was making a mistake and would lose out on profits from alcohol sales, but they couldn’t have been more wrong. In the high season, you now have to book weeks in advance to secure a table. His success can be attributed to a combination of freshly made pasta, delicious food, affordable alcohol, and exceptional service. He’s so successful that he only operates five days a week with a single nightly seating. He lives life on his terms and, in my opinion, has found the perfect balance here on the island.

Have a good lawyer!

When considering a business acquisition, it’s often wise to avoid purchasing the existing company itself. Instead, opt to transfer its assets to a new and fresh corporation. This approach helps you steer clear of inheriting any potential unknown liabilities, such as outstanding employee benefits or other undisclosed financial obligations.

I don’t know what I am talking about!

The most crucial rule to remember is that I frequently make mistakes. So, if you have confidence in yourself, don’t hesitate to pursue your goals. Don’t allow anyone to dissuade you, but also make sure to thoroughly research and, most importantly, hire a competent expert in the field. You know what I’m getting at.

Lastly, some thoughts before buying a business.

When acquiring a business, you’re essentially obtaining three key components:

1. Tangible Assets: This includes any physical assets being sold with the business, such as property, vehicles, boats, and so on.
2. Work Methodology: This encompasses the specific operational methods, including contacts, recipes, trained staff (often an underrated asset), and the overall look and feel of the business.
3. Goodwill: Perhaps the most intangible asset, goodwill is the reputation and trust that the business has built over time, leading to repeat customers. It’s also the easiest to damage.

Before making the purchase, consider if you could recreate the business for a lower cost over the course of a year or two, compared to the purchase price. Evaluate whether the leap forward that buying the business offers is worth the expense. Do the math and make a rational decision.

Lastly, and this cannot be stressed enough, if you do decide to acquire a business, refrain from making any immediate changes to its operations for several months. Take the time to understand every aspect of the business, including the roles of each employee, and be capable of performing those tasks yourself. Only once you have a comprehensive understanding should you introduce any game-changing alterations. Otherwise, you risk squandering your investment.

If you want to search for businesses for sale you can do so by using your portal here.