Thinking of starting a business in Ecuador? Ten things expat entrepreneurs should know
By Benjamin Berger
When I arrived in Ecuador in 2013, I had no intention of starting a business. In fact, I had no intention of staying here for more than a few months. But life is full of surprises, and now, two years later, I find myself married, living in Cuenca, and running the growing real estate marketing platform MLS-Ecuador, and managing a team of four employees.
I’ve learned a good deal about the Ecuadorian business environment since I first arrived, and while I’m by no means an expert, here are a few of the things that I’ve learned along the way that might be useful to others thinking of starting a business.
A very important caution I need to emphasize at the outset and will repeat below: for all legal matters involving doing business in Ecuador, consult an attorney!
- Depending on your type of business, taking on an Ecuadorian partner might make sense. In our first year of operation, we got along pretty well with my capable Spanish. I made a few sales to Ecuadorians, but focused mostly on the expat market. The business really started taking off, however, when I decided to partner with an Ecuadorian. For me, the decision was prompted more by the need to understand the culture than the language. As an example, I am inclined to act quickly and sometimes aggressively when things get off track. I discovered very quickly that this approach doesn’t work well in the laid back Latin culture and my partner was there to point this out. The Ecuadorian perspective contributes significantly to better decision making.
- Hiring is hard; don’t rush it. Twice, I hired employees because they made strong, positive first impressions on me, only to find out later that their work ethic and abilities didn’t live up to those impressions once they were on the job. I thought I could depend on my gut feeling for picking ideal candidates, like I had in the U.S., but discovered that I couldn’t. My advice: advertise widely in newspapers and online. Interview as many candidates as you can. Remember that in Ecuador, the minute you put someone on your payroll, it is hard to get rid of him or her if they don´t work out.
You will need a legal representative who has a cedula. If you don’t have one yourself, find someone who does that you trust. This is easier said than done. Furthermore, your legal representative will have to trust you too because he or she will ultimately be accountable for your paperwork and tax liabilities.
- Find an attorney that you trust and who speaks English. Even if you speak Spanish, I strongly recommend you hire an attorney who speaks English if you are a native English-speaker. In all things legal, it is critical that you understand the issues that affect your business. Do your due diligence in choosing an attorney, checking references carefully. Not only do you want one who is honest and knows the law, but one who responds promptly to your needs. If necessary, pay a little extra for these qualifications.
- Choose the legal structure of your new business carefully. For us, it made sense to organize under a Sociedad Anonima, which is the equivalent of a corporation in most countries (as opposed to setting up a partnership, or limited liability corporation). Only a Sociedad Anonima can hold government contracts and offer its employees work visas, and these were options that we needed to have. (Also, a Sociedad Anonima looks good if you are doing business with Ecuadorians since they will want to know the legal status of your business more than expats do). The challenges? Accounting is considerably more expensive since you must hire a professional accountant. Your company’s books are open to a number of government agencies and, consequently, accountants need to be much more careful in making sure you are in compliance. Changes in corporate documents, transfers of shares, etc., all take more time and are more expensive, but are handled more easily through the Sociedad Anonima structure. Depending on the type of business you are setting up, other legal structures may work better. Operating as a persona natural, for example, makes sense if your company is small and you are the sole owner. No matter how you decide to organize, make the decision with the guidance of a capable business attorney who can explain the pros and cons of your options.
- Understand your responsibilities toward your employees. In addition to standard Social Security withholdings, employers are required to pay their employees an additional month’s salary in December, and a half month’s salary in August. Also, make sure you understand minimum wage requirements, which change annually. In recent years, the government has used a heavy hand in enforcing employee rights; be sure you understand them and make your withholding payments on time.
- Like all things Ecuadorian, time is more much “fluid” than you are probably accustomed to. Meetings will start late, deadlines will be missed and if you’re like me, this will drive you crazy. Don’t let it. Again, your Ecuadorian partner can provide invaluable counsel on time-related issues, which fall under the broader heading of “cultural differences.” This doesn’t mean you have to sacrifice your principles and standards; just make an effort to understand the culture and be pragmatic.
- This is a culture of not paying until there´s no other choice. Very frequently, people don´t pay their Internet bill until the service gets cut off, at which time they go down to the Internet company office, pay their bill, and get reconnected. In Ecuador, this is perfectly normal behavior and it informs you how financial obligations are viewed in general. I’ve encountered this mentality considerably more in Ecuador than I did in the U.S. My takeaway is to make sure controls are in place to manage payments, that you carefully explain them to your clients, and exercise them when payments are overdue. And don’t take it personally. Ecuadorians don’t.
- The unexpected will often make running a business difficult. Things will happen that you don’t expect that will slow down your operation. Be patient, roll with the punches to the extent you can and, if you have the means, have someone you trust deal with the bureaucratic headaches that arise along the way.
- This is a land of opportunity. I left the U.S. in 2009 after being underemployed for a period of time. Ecuador has provided me with an opportunity that the U.S. never did, and I am immensely grateful for it. Appreciate it and take the time to learn from others who have paid their dues here. Don’t let yourself get into the mindset that things don’t happen in Ecuador the way they should — or, the way they did back home. Don’t become angry and resentful; these are attitudes that do not breed business success.
Benjamin Berger, a native of beautiful Savannah, Georgia is Chief Financial Officer of Propertyshelf, Inc. Their website, http://mls-ecuador.com, is Ecuador’s leading multilingual real estate portal. He and his wife Bibiana have lived in Canoa, Quito, Olón, and currently reside in Cuenca. They are avid bicycle tourists and University of Kentucky basketball fans. Ben can be contacted at email@example.com.
Article reposted from January 2015.