Every person who experienced a regular full-time job in the Philippines surely, at some point in his/her 9-to-5 schedule, has thought to start a small business. We get moments of inspiration—an innovative idea that can change the world. We also get moments of desperation—the realization that we’re one day behind our deadlines!
Either way becomes an impetus for a career in entrepreneurship. However, having a great business idea is one thing; funding it is another topic. Do you know the cost of starting a small business in the Philippines?
As a serial entrepreneur, I’ve met many people who have shared their dreams of achieving financial independence by becoming self-employed. However, the majority of these people are withheld from pursuing their dream because they are concerned about the cost of starting a small business in the Philippines. They may have heard that one must have at least Php 1 million to capitalize a business as a corporation. “If I had 1 million pesos, I wouldn’t need a business!”
I understand their frustration because starting a small business in the Philippines can be a tedious process. The number of steps can vary depending on the municipality from which you secure your business permits. As a person who has registered businesses, I can say that the procedure can be a nightmare, and I’m not alone in this opinion. Other people have shared their “horror stories” when they tried to start a small business in the Philippines.
Before I discuss the steps required to start a small business, you need to answer two questions:
1. Do you have the time and experience to register your own business? If you hold a regular job, you may not have the time to work on some aspects of the registration process.
I suggest that you find someone who can. This person can be a friend or an associate who has a background in accounting and, of course, an experience in registering businesses before. There are also people who advertise these services online. Make sure to conduct due diligence before hiring anyone.
2. Have you decided on the type of organization for your business? There are three types of business organizations:
- Sole Proprietorship
Each business organization has its advantages and disadvantages. You can check some online resources to help you decide.
Personally, I would recommend that you register your business as a corporation because of the tax benefits and limited liability. A corporation can also make the image of your business appear professional with the capacity to scale operations.
If you want to set up a sole proprietorship, you should register your business with the Department of Trade and Industry or DTI. Corporations and partnerships are registered with the Securities and Exchange Commission or SEC.
In this article, I discuss the steps and costs of registering a corporation in the Philippines.
- Register Your Business Name. You can register your business online at the SEC website. This procedure takes some time. You will be surprised at the number of entrepreneurs who have thought of the same business name as yours!
- Pay SEC Registration Expenses. You will be required to pay a registration fee at SEC. You can also find out online how much your registration will be. Before anything else, you have to decide how much your authorized capital Most people places the authorized capital at 1 million because it gives the company prominence. I placed mine at Php 1 million.
Here is the summary of the costs I paid to register my business with SEC:
Cost of Registering Small Business with SEC
Business Name Reservation for 90 days: Php 120
SEC Express Lane: Php 600
SEC Registration Fee: Php 2,530
Stock Transfer Book: Php 500
BIR Documentary Stamps: Php 1,500
Notarial Fees: Php 1,500
Total SEC Expenses: Php 6,750
I can say that SEC has done a great job in making business registration easy by improving its online services. Now, the express lane system is available online with the assurance that you can get the documents within 3 days!
After acquiring the requirements from SEC, complying with the requirements of the Bureau of Internal Revenue or BIR was next. At this point, I turned the responsibility over to my accountant to make sure my business would comply 100% with everything the BIR wanted.
Cost of Registering Small Business with BIR
BIR Annual Registration Fee: Php 500
Documentary Stamp: Php 75
Books of Account: Php 200
Cost of Printing Official Receipts: Php 3,500
Total Cost at BIR: Php 4,275
I paid my accountant Php 2,000, which covered his fee plus transportation and food expenses.
With the business registered at SEC and BIR, I could now proceed to obtain the important business permits.
Some entrepreneurs approached me during my seminars and asked my opinion on getting business permits. They have reservations because their businesses are home-based. I qualify my answers this way:
- If you register a business as a corporation, you have to indicate a business address in your SEC papers. If your village does not allow businesses within its confines, you have to lease a business address to receive communication. A place that leases a business address requires you to submit a business permit.
- A business permit authorizes you to carry out your enterprise within the jurisdiction of your municipality.
For these reasons alone, you should get a business permit. You have to view your business as a professional, legal establishment regardless of scale or location.
For my business permit, I asked my administrative assistant to handle my papers. Here is the summary of the costs I paid to get the business permit:
Cost of Getting Business Permit
Barangay Clearance Fee: Php 500
Corporate Community Tax Certificate: Php 500
Mayor’s Permit for New Business: Php 6,000
Garbage Fee: Php 5,400
Sanitary Permit: Php 600
Business Tax: Php 835
Total Cost of Business Permit: Php 13,835
I paid my administrative assistant Php 1,500 for her fees, transportation, and food allowance.
The following are the other costs incurred in starting a business:
Other Costs in Starting a Small Business
Rent / Business Address Deposits: Php 3,000, which is equivalent to 2 months of rent
Internet Connection: Php 1,800
Office Supplies: 2,000
Salary of Assistant for 3 months: Php 36,000
Retainers’ Fees for Accountant: Php 2,000
My total cost for starting a business amounted to Php 71,360.
Related: 5 Essential Business Permits and Licenses in the Philippines
The cost of starting a business in the Philippines depends on the type of business and location. If you plan to run an on-site, full-scale business, your expenses will be much higher than mine. You also have to register your business with government-mandated agencies for employee benefits: SSS, Pag-Ibig, and SEC.
For comparison, let me share with you the start-up costs of my friend who set up a BPO company in Makati. These are estimated, given that he could not remember the exact figures:
SEC Registration: Php 15,000
Business Permit: Php 20,000
BIR: Php 5,000
Deposits: Php 70,000
Internet: Php 55,000
Landline: Php 3,500
Office Supplies: Php 10,000
Leasehold Improvements: Php 100,000
Equipment: Php 350,000
Furniture: Php 100,000
Working Capital for 6 months: Php 5,000,000
Total Expenses: Php 5,728,500
As you can see, his expenses are almost 90 times more than mine! But in business, the higher the risk is, the higher the reward becomes. Fortunately for him, he was able to recover his investment and profit after 2 years.
If you look at it in another way, going through the process of starting a small business in the Philippines is a great way to gain experience as an entrepreneur.
- You will get to interact with different people.
- You will learn new processes.
- Your patience, disposition, and commitment will be tested.
- You will encounter situations that require quick decisions.
- You get to manage different aspects of a business: organization, money management, and human resources.
Just remember that every year, you have to file your financial statements, update your General Information Sheet or GIS with SEC, pay your taxes with the BIR, and renew your business permits with the municipal government. You do not have to do this yourself. You can have your liaison officer to do the legwork.
Through it all, getting business permits and knowing well that your dream has become a reality will make the entire journey worthwhile.