In the past 15 years I have incorporated more than 8 companies and executed more than 13 business ideas in different countries.
Some of these ideas were a success, others suffered a quiet and sad death.
And as easy and exciting as it is to open a new company (especially in the Netherlands), it is a lot less fun closing them.
So this time i wanted to jump into lessons learned from my company graveyard.
I want to take you through 5 company graveyard headaches, and 5 things I would do differently to build a cleaner, less complex corporate structure.
5 company graveyard headaches
As entrepreneurs, we love to turn ideas into businesses, and having an incorporated company, kinda makes it official.
Or at least that’s what I thought in my 20’s. Here are the headaches that followed 15 years later.
1. Closing a company can take forever
If you think closing a company is a matter of just closing your bank account and unregister it, think again. (Unless your company was an empty shell and you barely did business with it).
This process can easily take longer than 1 year. Before closing a company (even if you didn’t go bankrupt) you will need to settle all the outstanding debts and the bookyear will need to be completed first.
2. Closing a company abroad takes longer
Especially the German company that we started as a subsidiary has taken me 3 years to close and we are still busy closing it.
This mostly has to do with the fact that the EU still leaves lots of gray areas in legislation between borders.
This means two countries are now disagreeing with how easily you can close your company.
3. Closing a company is a long, slow distraction
The process of closing a company is a constant distraction.
As the process is dependent on many small steps (accounting, closing several accounts, closing offices, closing bank accounts, etc.) it will constantly interrupt your day.
So while you are fired up about closing a new customer for a new business you will find yourself figuring out, “what the hell was your password for that stupid online software you subscribed to ages ago!!??”
4. Closing a company is not cheap
An accountant can help you close all your bookkeeping but for each company this can easily cost another €1.500.
Closing a company is especially expensive for international companies.
We have operated a German subsidiary with more than €1.000.000 in yearly revenue for 5 years.
Over time this meant that profits were accumulated on a German bank account, which we paid taxes over.
You would think getting the money out of Germany would be a matter of making a transfer to the holding company.
In many cases this is seen as a taxable event which can mean your taxed money sitting on that bank account can be taxed another time with 25% even if you are not paying it out as a dividend.
So to help me figure this out I have to pay an international tax specialist to figure out the best way to do that, and then again pay 2 notaries, one close the subsidiary on the Dutch side and one to close it on the German side.
Total cost: Approximately €10.000
And then still I have to wait another 3-9 months.
5. Until the company isn’t closed you are slowly bleeding money
A company abroad needs an official address, the accountant needs to keep filing your taxes (even when no new money comes in), your bank will keep charging you for your account and all these expenses can easily add up to €2.000 per year for a corporation.
So just a bit of quick math: 8 x €2.000 = €16.000 is a lot of money wasted if that’s the size of your graveyard.
5 lessons learned for a cleaner company structure
All of these have been painful lessons of the past years, however I didn’t want to make this a depressing article.
So let’s dive into the 5 things I would do differently to run into less hassle, so maybe you do things differently 🙂
1. Only incorporate your first company once you really make enough money
Even though it is tempting to immediately start a company, actually many businesses can easily exist without an actual company for quitte a while.
It might mean that you incur some extra expenses at first that you cannot immediately deduct from taxes, but it also saves you the hassle of setting up a company and keeping track of all your admin.
Also good to know: In the first year you can also declare expenses you have incurred before you officially started the business. For instance your website hosting or web design. Meaning you can pay yourself those expenses back also after the fact.
As a general rule of thumb I would say that until you make your first 100K in most service businesses it doesn’t really make sense to immediately incorporate.
2. Only incorporate a separate company abroad if it is really necessary
If I look back at our business in Germany, I would do that completely differently nowadays.
At some point most of our admin, invoicing was done only through our Dutch corporation. So it was perfectly feasible to operate only from the Dutch company.
For international employment you will typically still need a local legal entity.
Back in those days we didn’t have companies like Remote or Deel that can facilitate that on behalf of your company, but now I would use those services in a heartbeat. These companies act like payrolling intermediaries and employ the people on your behalf. Even though this costs a bit more it saves you a bunch of time, and can help you speed up testing a new market.
You can always incorporate later once your revenue stabilized.
3. Have 1 accountant, 1 lawyer, 1 notary that you always do business with
At some point things will get quitte confusing. Administration will be scattered over several business and many decisions will date back many years.
In those moments I am happy I worked with 3 key firms for many years. My accountant, lawyer and notary are all small/mid sized firms. This means I am not only dependent on 1 person, but the firm knows my companies well.
4. Use labels under the same business for as long as possible
At some point I also launched a pitch training company next to my communications agency.
As we were doing approx €100.000 per year I thought it was smart to separate it into a new entity.
But it would have been perfectly fine to just have a separate website and email, but still keep it under the same legal entity.
This would have meant that you don’t need to separate invoicing and can keep admin in 1 place.
5. Create a separate legal entity if you expect to raise money separately or sell it separately
As a general rule of thumb I would really ask the following question:
Can I sell or raise money on this as a completely separate unit?
The pitch training business for me was not much more than an additional service in a communication business. It was unlikely that we would have sold it separately.
We did work on a software business for a while, which we had also incorporated.
However in hindsight I would have built the software company first with launching customers and / or really tested the waters with investors, before going into the mess of creating yet another entity.
If you can avoid the graveyard, do
As much fun as it is to build businesses, before you dive into another legal entity:
Know there is plenty you can do before actually turning every new idea into a separate entity
And finally, know what you are getting yourself into when it comes to cleaning it all up 🙂