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Updated: 10-11-2013

Writing a Business Plan in Tenerife

The biggest reason why small businesses fail in Tenerife is because of they do not have a good business plan. New entrepreneurs who invest in a Tenerife business often take into account the purchase price of the business, and little else. Consequently when costs come along, they are a complete surprise and business owners can find themselves unable to cover them and grind to a halt. A good business plan will ensure that there are fewer nasty surprises.

The most obvious cost of a business and probably the largest is the purchase price that you pay. If it is a freehold property, then additional costs in taxes and fees will amount to about 8-10%. If you're taking over a lease in Tenerife, then there will be costs involved in transferring the lease in your name. You will need to pay a lawyer or a Gestor about €1,500 to €2,000 for this transfer. In addition you will have to pay the landlord in advance, which is normally equivalent to about two-three months rent.

Many business owners take these costs into account, and that's about the extent of their business planning. In some cases hopeful business owners have been known to take over a business having spent their last penny on the purchase and the costs. On day one of running their new business they have no money left, and their problems have already started. Costs start from that first day, even before you have had a chance to earn any money.

The first few months of trading when you take over a new business will be a steep learning curve. In these early months you may be hardly breaking even, or possibly making a loss. The business will require operational capital to pay staff, purchase materials and meet the bills that allow it to continue to trade. In many cases these costs will appear before the revenue that they generate, so in the early months you will need a float of operating capital.

When you draw up your business plan, you will need to consider what these costs actually are for your business. For example if your business is a bar, then clearly you will need to buy drinks and possibly food. You may have employees such as a chef or a barman, and their wages and social security costs will need to be paid. It is likely that you will need to do some marketing and advertising of your new business, which will also need to come out of this operating capital. Your business plan should predict what these costs are and when they need to be paid.

Of course inexperienced entrepreneurs may argue that the business should be making money from the first day when you move in, and may hope that this will cover their operating costs. This is a dangerous and risky assumption. Under capitalisation of your business may well lead to a downward spiral as every penny you earn goes towards costs and you are unable to afford to make any real changes to improve profitability. This a very stressful way to run a business and leaves you a very small chance of success.

Many people consider a business plan simply a formality. But a good business plan will be the difference between running a successful and thriving business or reeling from one disaster to the next. It will give you a good understanding of the costs involved in your business and allow you to set realistic revenue targets.

Buying a business in Tenerife should be the beginning of an exciting and rewarding new chapter of your life and effective planning can ensure that it will be. Take the time and effort to plan your business carefully, forecasting your first year month by month. This will help you calculate exactly how much operating capital you will need over and above the costs associated with purchasing it.

By Irina Saltmarsh

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