Want to open a small business in Mexico? Here’s a preview of the potential problems, solutions and of course – benefits!
Opening a small business anywhere comes with its challenges and opportunities. I sat down with Shirley of Nice Day Coffee in Mexico City, and Mariana of 360 Agency, a consulting firm that assists start-ups and investors, to find out the nuts and bolts of starting and running a successful business in Mexico.
Problems and solutions to opening a business in Mexico:
The issue: Language and cultural barriers. Whether or not you’re proficient in Spanish, there is more to learn about Mexico’s professional culture than just the language. Cultural differences play a big part in your success as a small business owner, and the occurrences one may encounter in Mexico’s business environment may prove tough to translate.
The solution: Shirley suggests having either a Mexican partner or bilingual manager with whom you have already established trust. This can help tremendously when communicating with and understanding your employees, contractors and licensers, who may not be used to the straight-to-the-point attitude of a North American expat. “Managing performance problems, or worse, managing out is definitely not as easy [here] as it is in the United States. Be prepared for that heading in,” Shirley says.
The issue: There is a chance that your contractor might disappear one day, never to return. With the money you’ve already paid. This can happen anywhere.
The solution: Discuss and agree upon a timeline in advance, paying out when certain stages are complete. Photo updates of work finished at a regular cadence may help, but just be sure to establish these requirements in advance. Request a “factura” (a legal invoice for goods and services) for all work completed, but also for any material costs.
The issue: Permits and other red tape. As in most countries, the red tape around operating permits can be tricky. On the bright side, Shirley was surprised at the ease of the permitting process in Mexico compared to some of the entrepreneurial “horror stories” she had heard in the States.
The solution: Hire proven specialists to help. Shirley navigated much of the permitting process with the help of local consultant Mariana of MX360 Agency in Mexico City, which provides consulting services for residential and commercial real estate, business start-ups and general relocation to Mexico. “Mexican laws and regulations are different from [those of] the U.S., so it’s very important to reach out to a professional before starting a business in order to avoid the most amount of red tape possible, as well as to avoid being subject to fines,” Mariana says. If you are not fluent in the language and legal nuances, working with a consultant will be one of your best investments. “I always start by telling my clients that the most important professionals they should be working side by side with are a lawyer and an accountant,” Mariana recommends.
The issue: Accounting. Tracking a new business’s finances is not for the weary. It’s especially intimidating in a new country.
The solution: Shirley advises all aspiring business owners to hire a reputable, experienced accountant. After a few months, hire another reputable, unrelated accountant to audit the first one. “Do not skip this step. I also think it’s fair game to head into this with full transparency on both sides,” she says, “share this expectation with the first accountant before agreeing to the engagement.”
“Some people won’t like this, and that’s okay,” Shirley continues. “Find a different accountant…this is one of the most important business relationships you’ll have, so both sides should feel 100% confident starting the relationship.”
The issue: Employee misconduct. Shirley suggests knowing the laws of hiring and dismissing employees and knowing those laws well before you even start. “This is one of the most stressful parts of running a business here,” she says. The legalities around staff in Mexico differ vastly from those in other countries (notably the U.S.) and it’s essential to be prepared for the employee-sided environment in which you’ll find yourself.
The solution: Ask for recommendation letters from previous employers and call the business directly to make sure it’s actually an employer and not a friend. Ask your accountant to conduct background checks of any pending or former litigation for each potential hire. If an employee faced legal challenges with an employer in the past, i.e. theft or negligence, this will be visible on their record.
The benefits of opening a business in Mexico:
Opening a business in the United States is a costly, lengthy and oftentimes impossible goal to accomplish. Mexico provides an excellent environment to open and run a successful brick-and-mortar. Here are just a few reasons why:
The red tape: That which might otherwise be the biggest challenge anywhere else was, for Shirley, surprisingly navigable here. With a little help from a lawyer or advisor, one can tackle the paperwork issue in Mexico with general ease.
The cost: Cost depends on the locations you’re considering, but generally speaking, it is significantly less expensive to open a physical shop in Mexico. When I asked if she felt the personal investment needed to launch Nice Day Coffee was fair, Shirley replied with a confident “yes.”
The community: Starting a business in Mexico City provides a wonderful outlet to make friends, build a community and immerse yourself in the local neighborhood. “We know a lot of the neighbors now, what they do, where they live, what’s going on in their lives. If anyone sees anything suspicious, they will text or message us… we really feel part of the community, and we feel safe,” Shirley says.
The chance to give back: “This has probably been the best part,” says Shirley, adding that Mexico’s highly structured work culture makes it easy for expat business owners to create opportunities that often don’t exist here. In a country where professional advancement can be incredibly challenging, expat business owners are in a good position to make career progress a reality for their employees.
Shirley adds, “For those of your readers inspired to pursue a similar journey, I really want to encourage prioritizing opportunity creation to benefit everyone involved. Living here is such a privilege, and it comes with a responsibility to positively impact the communities we join.”
Terms you need to know when opening a business in Mexico:
- Facturas – To make sure payments are processed correctly and according to the law, ask everyone you interact with for a factura. What’s a factura? It’s a legal receipt of goods and services that can be used as both proof of payment and a necessary document for tax deductions. You can also ask for this paperwork when receiving “bills” from suppliers.
- Traspasos – This is an official transfer of ownership required for brick-and-mortar businesses. Many locations will provide these. What is or isn’t included in the traspaso is negotiable. “Don’t be afraid to negotiate, and make sure the landlord is involved, so you can reduce the possibility of being taken advantage of in this process.”
- Actas – There are two actas – or bylaws – you should know about when starting your business. An Acta Costitutiva is a mandatory document needed to register a business in Mexico. An Acta de Asamblea is a document that is created and registered with a notary each time there is a change in the business’s bylaws. Both must be notarized in person and in Spanish. As business jargon can be difficult to understand in one’s own native language, a translator might be useful during this process.
- Aval – Before securing their current location, Shirley and Nery put in multiple offers that kept getting declined. Eventually, they realized they needed an aval. An aval is a financial guarantor of your brick-and-mortar and many owners require that the aval own property in the city in which you’re renting. If you’re opening in Mexico City, for example, a family member who owns property there would make an excellent aval. Since neither Shirley nor Nery had access to a guarantor in CDMX, they had to go a different route.
- Poliza Jurídica – This is where a Poliza Jurídica comes in. Without a proper aval, property renters can often opt for a Poliza Jurídica or a legal insurance company that can act as a guarantor. According to Mariana, most landlords renting commercially will ask for this, as the Poliza Jurídica will also run a background check of the tenant and act as a legal mediator between landlord and tenant in case of a controversy.
Bethany Platanella is a travel planner and lifestyle writer based in Mexico City. She lives for the dopamine hit that comes directly after booking a plane ticket, exploring local markets, practicing yoga and munching on fresh tortillas. Sign up to receive her Sunday Love Letters to your inbox, peruse her blog, or follow her on Instagram.