Doing Business

Doing Business

Setting up a business is a relatively simple matter, although it does take time and complications may arise depending on who you are dealing with. There are many opportunities on the islands. However, one must remember that it is a very small market and, although we are lacking many things and there is a demand, the market is not automatically large enough to sustain all types of businesses. Several factors may influence the success of a business:

  1. The level of demand for what you want to offer: there has to be enough people wanting to buy your products. Theoretical need does not always translate n actual purchases for many reasons.
  2. The price you are able to offer: remember that getting the merchandise here and the customs and duties you will have to pay can increase the cost price substantially. This may bring some merchandise to a price that is higher than what you would pay in the United States or Canada.
  3. The price people are willing to pay: a lot of people have become accustomed to Honduran prices. Although the quality of items is not up to par with North American products, people may balk at having to pay more normal prices for better quality products.
  4. Your timing and cash flow: the islands are in a stage of fast development but any rapid evolution is also a period of turmoil where things are very fluid. You need to realize that, although there are a lot of things happening and projects going on on the islands, the occupants are not all here yet and it is going to take time before the economy is in full swing.
  5. The market: there are several market segments that you can cater to, depending on what you have to offer. See Market Segments below for more details.
  6. Your capacity to withstand the quiet periods: this also has to do with your cash flow. There are some very quiet times during the low season and the first months after opening a business are sometimes quiet as well, until people know your business exists. You need to make sure you have enough cash flow to let people know about your business by doing some marketing and advertising. Word of mouth is never enough for any business. Things always need to be stimulated and it takes work and money!

Since there is no demographic data at this point regarding the islands, you will need to do your homework in order to identify the market you plan to serve. This is just like starting a business in any other place: the same business principles apply.

Market Segments

  • Cruise ship passengers
  • Vacationers
  • Residents
  • Island natives

Cruise ship passengers have been known so far to spend very little, in fact as little as possible. When they do spend, they often do it before stepping off the ship, in the form of pre-booked excursions, or by buying a few souvenirs in gift shops. They do not eat much in restaurants since they have all the food they want on board. It has been estimated that, on average, about half the people on cruise ships come on shore when in Roatan.

Vacationers come from many countries and accordingly have very different spending habits. Some may look for certain products or services, depending on where they are staying. Some resorts are comprehensive in their services while others are not.

Residents are the ones most likely to look for bargains since they have become used to local prices. Some may want quality and not mind higher prices (not the majority), while others may not. There are residents who are wealthy and others that are quite poor on the islands. You will soon find out who they are! Please note that people who own property here are not necessarily on the islands full time and some are here only a few short weeks every year while their residence is not occupied for the rest of the time. So there are a lot of unoccupied dwellings throughout the islands at any one time. Some people rent out their houses or condo to tourists which brings in a flow of tourists on a regular basis.

Island natives mostly do business between themselves and like to encourage each other. Some have important businesses and others cater to tourists with their small businesses. These small businesses often operate on a whole different scale than we do, meaning that they are extremely small operations by our standards, smaller than our micro-businesses.

Businesses

Businesses could be your clients depending on what you offer. Note that a lot of small businesses struggle during the low season since they do not always plan ahead of time for that quiet period.

Legal Aspects of Setting Up a Business

There are two (2) different business structures available in Honduras: the individual business license and the incorporation. You can find more details about this in the Legal Aspects section.

Operations Permit

In order to legally operate a business, you need to obtain an Operations Permit from the municipal government. This is the only government you deal with for business purposes on a regular basis. The initial cost of that permit is about 3,000 Lps. In addition to that initial fee, a monthly fee also needs to be paid, based on your earnings. This fee has to be paid within the first 10 days of the month at the municipal office. If you miss a month, there will be a small fine to be paid.

Sales Tax

When operating a business, you are required to collect a 12% sales tax. That tax then has to be remitted to the municipal government monthly, before the tenth of the following month. (Certain things do move quickly in the islands!) Out of that remittance, you can deduct the tax you have already paid on your business purchases and expenses. The sales tax you pay on business expenses is deducted from the sales tax collected and A monthly report is produced by your favorite accountant. It is interesting to note that the tax rates is lower when your monthly rent is over $600. The accountant produces the report and collects the sales tax to be paid, along with his/her fee, and takes care of the remittance to the municipal government.

If you do not operate the business for a given month, you can ask your accountant to produce a report stating that your business was closed for the month. Keep your receipts for the next month. Of course, you will need to pay your accountant his/her monthly fee.

Accountant Fees

Accountant fees generally vary from $150 to $300 per month, depending on the size of your business.

Corporate Income Tax

Corporate income tax has to be paid yearly by the end of April, based on the earnings of the year. The accountant who has produced the monthly tax report will easily produce this yearly report for you.

More to Come!