There are several challenges that an entrepreneur will face to start a business in Portugal.
A simple SWOT analysis will tell you that a relatively virgin market regarding competition is a great opportunity. On the inverted polarity of things, the reduced buying power of the general consumer market is a considerable threat. If you come with advantages such as technical knowledge and experience, make sure that you understand the local economy behaviour and the bureaucratics involved, so that misperception doesn’t become a dangerous disadvantage.
Find the right market
Business models in small economies with low wages require quite a bit of attention to the buying power of your average client. I usually choose the market before choosing what to sell. Good service in niche markets is always a wise choice, with minimal investment. For those into industry, transforming the local raw and affordable materials can be a good option to export to the EU market (500 M people).
Design your Minimum Viable Product (MVP)
After deciding where to sell, it is necessary to come up with a product or a service that will satisfy a necessity, an emotion or simply something that your clients would like. Steve Jobs would say that people don’t know they need something until you put it in front of them. He was quite successful putting his vision into practice. The MVP shouldn’t be too elaborate, but it should be accurate and effective. Spending too much time here will compromise the development of the product, because it needs to be tested in an early stage. Then it can be improved.
Test your creation
Whatever you think about your product or service regarding quality and price will always be inaccurate. You need to test it in the real market. Try to sell it to 10 of your target clients. Hear what they say about price, inclusions and quality. Then it starts to get real.
Now that you know that you have a viable product or service, you can start to trade. At this stage it is very important to get qualified help so you can understand the legal and tax systems. There are several options to start a business, the most common ones are as a self-employed (Empresário em Nome Individual) or a limited liability company (Sociedade Comercial por Quotas). These options come with different formalities and different tax rates. You need to be able to forecast your sales and know when to change from one system to another. You also need to understand what to do in each of these systems, regarding legal mandatory acts, VAT regimes, Social Security Payments etc.
After getting some income, it is quite important to spend a bit of money on an IT tool that can be accessed from your phone and from where you can read the operation and the financial analysis. This will pay back in the first year, because you’ll make good decisions every day and you won’t need unnecessary staff which would be doing redundant organisation tasks. As the operation grows you’ll need to hire staff but they will be doing important and productive work and making money for everybody.
Tax efficiency versus productivity
One of the biggest concerns in business is taxation. There is always a temptation to avoid paying tax in slow economies with considerable labour costs and considerable tax rates. As an example, in the UK, the Social Security payment is 11% where in Portugal it is 34,75%. But the Portuguese Accountancy System (SNC), within some boundaries, allows companies to minimise tax until a certain extent through investment. Eligible expenses and depreciable assets within the scope of the operation will allow a significative tax reduction, when you reinvest the revenue in productive structures. Fiscal fraud is quite a censurable crime which consists mainly on not declaring revenue, the Portuguese Corporate and Fiscal System was designed to keep value in the companies: to maximise productivity. So, by declaring sales and reinvesting it, you can get legal tax relief and keep a lot of value for yourself, the shareholder. In the first 2 years, the entrepreneur won’t be able to earn a high salary.
But, after that and with the correct business model, sales will grow to good numbers, the company will be able to expand and the mind behind the business can receive the prize of hard work and success.
Corporate Lawyer | Business Intelligence & Tax Management
AG INTERNATIONAL | Law Firm
Digital Helpdesk: www.aginternational.eu
Published on The Portugal News on the 13th August 2021