Financial planning

How to finance your business in France

Running a business in France, whether you’re self-employed or the owner of a company, can – and should – be enjoyable and rewarding, but at the end of the day, business is business and you must at least break even to survive; if you want to enjoy the fruits of your labour as well as the labour itself, you must make a profit.

Financial planning

The most common mistake people make when they arrive in France with plans for a new life is to be unrealistic about what they can achieve

and overoptimistic in their financial projections. It’s highly unlikely that your business will make substantial amounts of money from day one. At this early stage, make sure that your financial projections are pessimistic rather than optimistic.

Some people suggest having resources to last a year, others as much as two or even three years. Many foreigners find that the worst point for them comes at around 18 months to two years after their arrival. The novelty has well and truly worn off, business is slow, money is running out fast, and they don’t feel they can stomach any more French bureaucracy. At this point it’s very tempting to give it all up and go home. Make sure you haven’t burnt all your bridges and sold all your assets in your home country. If your finances run to it, keep a small property there so that you can go back and ‘regroup’ if you need to.

As a foreigner, you will find it doubly hard to make a success of your business – and not just because of the language barrier. Understandably, French people and other foreigners alike have a healthy suspicion of new arrivals.

Budgeting

Before setting up a business in France (or anywhere else) you will, of course, draw up a detailed budget, including the amount of capital and other assets you require to start the business, expected running costs and a (pessimistic) estimate of income. The Agence Pour la Création d’Entreprises (APCE) recommends that a business budget comprises the following, depending, of course, on the type of business:

  • Business registration fees;
  • Initial capital must be paid by the owners.
  • Fees for legal advice or assistance;
  • Patent or copyright fees or advice;
  • Funds for initial publicity (advertising, marketing material, etc.);
  • Purchase, rental or construction of business premises;
  • Installation fees, e.g. shopfitting;
  • Utilities, e.g. electricity and water;
  • Acquisition of machinery, material, vehicles and computers;
  • Acquisition of stock, samples or demonstration merchandise;
  • Purchase of leasing rights (if taking over an existing business);
  • Deposits, e.g. for rented premises and equipment;
  • Insurance premiums;
  • Staff wages, including social security contributions.

When you’ve reached the appropriate stage in your research, you should put together a business plan and take it along to a professional who’s familiar with the economic trends in the area you’re interested in and can advise you about the local business environment and any opportunities for obtaining financial support for your venture. There are legal firms that offer a service in your home country and in France and specialise in advising on business ideas and financial plans.

Cash Flow

Once you’ve drawn up an initial budget, you should produce a cash flow forecast ( prévision financière), which you must present to a bank or investor if you need to raise capital. In fact, you’re advised to make three forecasts: your projected cash flow if everything goes according to plan; the cash flow you can reasonably hope for; and what will happen if things go badly. It’s this last projection that needs to be pinned above your computer screen, as this will remind you of what you must do to survive .

Avoiding cash flow problems in France is a fine art, as social charges and taxes must be paid on time (to avoid an automatic 10 per cent penalty for late payment, not to mention possible fines), but the French don’t have the world’s best record for prompt payment of bills. Getting customers to pay can be one of the more ‘challenging’ aspects of running a new (or even an established) business.

It’s possible to charge a late payment fee (which must be at least 1.5 times the official interest rate), and most vendors put a warning to this effect on their bills, although few implement it and you won’t earn a favourable reputation if you do. There are various arrangements you can make with your bank to help your cash flow, including an overdraft facility ( découvert).

It’s also possible to buy receivables insurance from certain insurance companies; you pay a set premium each month or quarter based on the evaluation of the ‘riskiness’ of your business – usually calculated as the balance outstanding for each of your customers and the assessment of the individual and overall risk of not being paid. Note, however, that receivables insurance pays out only when a customer goes bankrupt and not in cases where a customer simply delays payment for months on end.

Raising Capital

Unless you’re fortunate enough to have sufficient ‘cash’ to finance the set-up of your business, you must raise the necessary capital. The standard sources of financing a new business are discussed below. As well as investigating the opportunities for raising capital in France, you should consider the options for doing so in your home country or previous country of residence, as it may be advantageous to do so.

If you need to import funds from abroad, there are no limits to this. However, if you receive any amount above € 1,500 by post, it must be declared to customs. Similarly if you enter France with € 8,000 or more in French or foreign banknotes or securities, you must declare it to French customs. If you exceed the € 8,000 limit and are found out, you can be fined € 1,500 or more.

A general source of information is your regional Direction Régionale de l’Industrie, de la Recherche et de l’Environnement (www.drire.gouv.fr ).

If you require capital to set up your business, French law forbids you from carrying forward losses indefinitely. When your losses (accumulated or suffered in a single tax year) equal or exceed half of your stated capital, you must call a shareholders’ meeting to determine whether you want to continue with the company. If the shareholders decide to go ahead and try to make up the loss, you then have two years to restore the capital to the stated value. If you fail to do so, you must call another shareholders’ meeting to disband the company or recapitalise it (by putting in more funds or reducing the stated capital level). Recapitalising involves submitting forms to the chamber of commerce – and the fact that you’ve lost half your capital is included on your Kbis until you recapitalise or restore the funds, which in turn can interfere with your ability to arrange credit with banks or suppliers.

Dossier Financier

Whatever type of funding you require, you must produce a financial ‘dossier’ to present to potential investors, banks and other interested parties. This should include the results of your market research, a three-year cash flow forecast and a statement of the start-up funding available and required and how this will be used over the first three years. You should attach a copy of your business plan to the dossier.

Personal Savings

This includes the savings of the creator of the company (i.e. you) and the shareholders or partners. You may not wish to invest personal savings in a business venture, but it’s important that you do so, as it demonstrates your commitment to the business.

It’s also possible to use funds in a personal ‘share saving’ account ( plan d’épargne en actions/PEA) to finance the start-up of a small business under certain circumstances. With a PEA you’re allowed to invest in non-quoted companies and there are tax advantages according to how long the PEA has been in existence. In some cases, an épargne logement account can be used to finance business or professional premises.

Loans

Generally, French financial institutions are wary of lending money to entrepreneurs, particularly foreigners and (sad to say) women. French banks won’t usually loan more than 70 per cent of the pre-tax value of any asset put up as collateral, and the term of the loan is limited to the expected economic life of the asset. Most banks also limit their commitment to the amount the business owner has committed of his own funds and require a guarantee that the money will be repaid. Regional and local banks are often parochial in their outlook and their managements insufficiently autonomous to deal with untypical cases. Banks can also impose high interest rates on loans they consider to be ‘high risk’.

It’s therefore advisable to deal with financial consultants who are familiar with banking practices rather than directly with individual banks. The APCE recommends a number of agencies, including l’Association pour le Droit à l’Initiative Economique (www.adie.org ), France Active (www.franceactive.org ) France Initiative (www.france-initiative.fr ) and le Réseau Entreprendre (www.reseau-entreprendre.org ). Some banks have agreements with organisations dedicated to supporting new businesses, including clubs for business creation, boutiques de gestions and local economic development organisations. Members of the organisations may be eligible for unsecured loans at reduced rates of interest (or occasionally even at zero interest).

The most common mistake people make when they arrive in France with plans for a new life is to be unrealistic about what they can achieve

and overoptimistic in their financial projections. It’s highly unlikely that your business will make substantial amounts of money from day one. At this early stage, make sure that your financial projections are pessimistic rather than optimistic.

Some people suggest having resources to last a year, others as much as two or even three years. Many foreigners find that the worst point for them comes at around 18 months to two years after their arrival. The novelty has well and truly worn off, business is slow, money is running out fast, and they don’t feel they can stomach any more French bureaucracy. At this point it’s very tempting to give it all up and go home. Make sure you haven’t burnt all your bridges and sold all your assets in your home country. If your finances run to it, keep a small property there so that you can go back and ‘regroup’ if you need to.

As a foreigner, you will find it doubly hard to make a success of your business – and not just because of the language barrier. Understandably, French people and other foreigners alike have a healthy suspicion of new arrivals.

Budgeting

Before setting up a business in France (or anywhere else) you will, of course, draw up a detailed budget, including the amount of capital and other assets you require to start the business, expected running costs and a (pessimistic) estimate of income. The Agence Pour la Création d’Entreprises (APCE) recommends that a business budget comprises the following, depending, of course, on the type of business:

  • Business registration fees;
  • Initial capital must be paid by the owners.
  • Fees for legal advice or assistance;
  • Patent or copyright fees or advice;
  • Funds for initial publicity (advertising, marketing material, etc.);
  • Purchase, rental or construction of business premises;
  • Installation fees, e.g. shopfitting;
  • Utilities, e.g. electricity and water;
  • Acquisition of machinery, material, vehicles and computers;
  • Acquisition of stock, samples or demonstration merchandise;
  • Purchase of leasing rights (if taking over an existing business);
  • Deposits, e.g. for rented premises and equipment;
  • Insurance premiums;
  • Staff wages, including social security contributions.

When you’ve reached the appropriate stage in your research, you should put together a business plan and take it along to a professional who’s familiar with the economic trends in the area you’re interested in and can advise you about the local business environment and any opportunities for obtaining financial support for your venture. There are legal firms that offer a service in your home country and in France and specialise in advising on business ideas and financial plans.

Cash Flow

Once you’ve drawn up an initial budget, you should produce a cash flow forecast ( prévision financière), which you must present to a bank or investor if you need to raise capital. In fact, you’re advised to make three forecasts: your projected cash flow if everything goes according to plan; the cash flow you can reasonably hope for; and what will happen if things go badly. It’s this last projection that needs to be pinned above your computer screen, as this will remind you of what you must do to survive .

Avoiding cash flow problems in France is a fine art, as social charges and taxes must be paid on time (to avoid an automatic 10 per cent penalty for late payment, not to mention possible fines), but the French don’t have the world’s best record for prompt payment of bills. Getting customers to pay can be one of the more ‘challenging’ aspects of running a new (or even an established) business.

It’s possible to charge a late payment fee (which must be at least 1.5 times the official interest rate), and most vendors put a warning to this effect on their bills, although few implement it and you won’t earn a favourable reputation if you do. There are various arrangements you can make with your bank to help your cash flow, including an overdraft facility ( découvert).

It’s also possible to buy receivables insurance from certain insurance companies; you pay a set premium each month or quarter based on the evaluation of the ‘riskiness’ of your business – usually calculated as the balance outstanding for each of your customers and the assessment of the individual and overall risk of not being paid. Note, however, that receivables insurance pays out only when a customer goes bankrupt and not in cases where a customer simply delays payment for months on end.

Raising Capital

Unless you’re fortunate enough to have sufficient ‘cash’ to finance the set-up of your business, you must raise the necessary capital. The standard sources of financing a new business are discussed below. As well as investigating the opportunities for raising capital in France, you should consider the options for doing so in your home country or previous country of residence, as it may be advantageous to do so.

If you need to import funds from abroad, there are no limits to this. However, if you receive any amount above € 1,500 by post, it must be declared to customs. Similarly if you enter France with € 8,000 or more in French or foreign banknotes or securities, you must declare it to French customs. If you exceed the € 8,000 limit and are found out, you can be fined € 1,500 or more.

A general source of information is your regional Direction Régionale de l’Industrie, de la Recherche et de l’Environnement (www.drire.gouv.fr ).

If you require capital to set up your business, French law forbids you from carrying forward losses indefinitely. When your losses (accumulated or suffered in a single tax year) equal or exceed half of your stated capital, you must call a shareholders’ meeting to determine whether you want to continue with the company. If the shareholders decide to go ahead and try to make up the loss, you then have two years to restore the capital to the stated value. If you fail to do so, you must call another shareholders’ meeting to disband the company or recapitalise it (by putting in more funds or reducing the stated capital level). Recapitalising involves submitting forms to the chamber of commerce – and the fact that you’ve lost half your capital is included on your Kbis until you recapitalise or restore the funds, which in turn can interfere with your ability to arrange credit with banks or suppliers.

Dossier Financier

Whatever type of funding you require, you must produce a financial ‘dossier’ to present to potential investors, banks and other interested parties. This should include the results of your market research, a three-year cash flow forecast and a statement of the start-up funding available and required and how this will be used over the first three years. You should attach a copy of your business plan to the dossier.

Personal Savings

This includes the savings of the creator of the company (i.e. you) and the shareholders or partners. You may not wish to invest personal savings in a business venture, but it’s important that you do so, as it demonstrates your commitment to the business.

It’s also possible to use funds in a personal ‘share saving’ account ( plan d’épargne en actions/PEA) to finance the start-up of a small business under certain circumstances. With a PEA you’re allowed to invest in non-quoted companies and there are tax advantages according to how long the PEA has been in existence. In some cases, an épargne logement account can be used to finance business or professional premises.

Loans

Generally, French financial institutions are wary of lending money to entrepreneurs, particularly foreigners and (sad to say) women. French banks won’t usually loan more than 70 per cent of the pre-tax value of any asset put up as collateral, and the term of the loan is limited to the expected economic life of the asset. Most banks also limit their commitment to the amount the business owner has committed of his own funds and require a guarantee that the money will be repaid. Regional and local banks are often parochial in their outlook and their managements insufficiently autonomous to deal with untypical cases. Banks can also impose high interest rates on loans they consider to be ‘high risk’.

It’s therefore advisable to deal with financial consultants who are familiar with banking practices rather than directly with individual banks. The APCE recommends a number of agencies, including l’Association pour le Droit à l’Initiative Economique (www.adie.org ), France Active (www.franceactive.org ) France Initiative (www.france-initiative.fr ) and le Réseau Entreprendre (www.reseau-entreprendre.org ). Some banks have agreements with organisations dedicated to supporting new businesses, including clubs for business creation, boutiques de gestions and local economic development organisations. Members of the organisations may be eligible for unsecured loans at reduced rates of interest (or occasionally even at zero interest).

This article is an extract from Making a living in France.
Click here to get a copy now.

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