Starting a Small Business in Israel

Gary Swickley, owner export business- Blue and White Kids
He started a clothing store called The Machsan, which bought up over runs of locally produced clothes for export to US companies such as the Gap, Banana Republic, etc. and sold them to the Israeli public at cheap prices. The range of merchandise was limited, so he started producing his own clothing to fill in the styles that the religious population found lacking locally.

Then import quotas in the US opened up to countries that could produce clothes more cheaply and Israel lost nearly all its business. Segued into Blue and White Kids - Israeli clothes sold to the US Jewish public, mostly school and camp uniforms. Jews in the US were happy to support Israeli businesses - to a point. When costs rose business went down.

The business transitioned to KosherCasual.com, which sells similar clothes direct to individuals rather than through the schools. He also created sleevies and Teenecks to allow the religious public to wear regular clothes.

If you are considering starting your own busuness, know what you can bring to the business and if it is appropriate to your personality. Write a business plan, even if it's informal. It will help flush out potential issues with the business idea.

Do a gut check - Do you have the right stuff to do it? The motivation, the ability to organize your time strategically, and follow through? Find a need in the market and fill it - know your customer, and offer what they want to buy, not what you want to sell. Get into their head - who is your customer, how often do they shop, how many people like them are there? Do something you love - it is hard enough to make it work if you do, if you don't than don't bother.

Sheila Schwartz, store owner- PC Integrity
She really fell into it, many things here in Israel hit you without warning and you need to deal with it. It was Reuven's love and he convinced her to join. They sat with a great accountant who really explained how everything worked.

People really needed an honest, affordable service - you can buy hardware anywhere but who to turn to when you need advice? This is what they decided to offer. It started small, in their house. There was no major investment. But then the business grew and they couldn't keep up with it in the house. It started to take over their personal life as well. So they decided to move to a commercial storefront.

Pros about working from home:
- You can be available for your kids
- There is no commuting time,
- Household expenses are tax deductible.

Cons:
- Customer traffic was constant
- There were no business hours
- It's hard to draw lines between work and home
- There was no privacy for the kids, they couldn't even answer the phone at home because it was a business line.

If it's a small business, what are you selling? Do you have room to store it in the house? It might just be too much to do that comfortably. Do you have a separate entrance? You need to have a separate phone line. If your business involves shlepping, make sure you're on the ground floor.

If you are looking for office space, you can rent an apartment or move into a storefront.
Apt:
- Cheaper, more available, many come with a machsan for storage, and can be very convenient for customers since it's in a residential area.
- But: Does it have the infrastructure to support your business? Is there Internet, phone line, easy entrance for customers? Can you put in what you need? Also, you need the landlord to be reporting the income in order for it to be tax deductible and provide a Nicui Mas Bamakor.

Commercial storefront:
- Much more expensive, harder to find because there are less of them. They do have more parking and are on ground floor, which is important for shlepping computers.

The bottom line is that they've found their niche - small business and individuals, people who need an honest opinion and advice. Even though getting started had its hurdles, and of course there is competition, they found their customer base and are successful there.

Ashley Coleman, self-employed ("atzmai")- Ashley Coleman Plumbing Services
He trained specifically in a field that would be successful here in Israel before making Aliyah.

There are a few important things to know before taking the plunge.
Pluses:
- You are your own boss, no one makes decisions for you.
- It can bring an enormous amount of self satisfaction.
- You have a lot of freedom in terms of the hours you work, so you can be around for kids or whatever, within reason (still need to be available for work!).
- That independence and flexibility can work both ways because you need to be aware of deadlines, and you also have to be available for clients - ignore them and you have no business.
- You have the opportunity to earn a lot more, but it does take time.

Cons:
- It can be lonely and isolating.
- Need a lot of self discipline and motivation.
- Your problem is your problem, and there is no one to rely on for decisions if you don't have a partner or colleague to bounce ideas off of.
- This can be filled in with mentors, business advisors, or colleagues in the business.
- The business can take over your life and your family.
- In some ways you have many bosses instead of one.
- The pressure of being self employed can affect your family.
- If things aren't going well it can keep you up at night because you are the only one responsible for making things work.
- There is a financial risk by investing in a business and living without a steady income, which is stressful, and it can be hard for a family to budget.
- You are everything - sales, marketing, secretarial, accounting and bookkeeping. - - You will need to wear a lot of hats (this can be a plus for some people!)
- You don't get paid for sick days or vacations.
- You must be very patient for the business to grow.
- You will have crises along the way and you need to stay focused to get through it.

Things to think about:
What's the nature of your business - need a clear business plan, know what you will sell/service will provide, need to know the market and understand your customer. Look at similar businesses to make sure you have an idea which will stick out above everyone else's. The key is to make sure you have a niche - how is your business going to be different from everyone else's, and why should a customer come to you rather than someone else. Make sure you have something to contribute and a unique selling point.

Location - do you want to work from home or an office. Working from home can be stressful for everyone but is cheaper and easier in a lot of ways.

Do you have financial backing to start - is it from pitzuim from an old job, savings, family loan, money from bank. Initially expenses will outweigh income and you will lose money at first. Expect not to earn the first few months or year of being in business.

Marketing - how will you find clients, will you advertise? Is there word of mouth in the community? Need finances in order to advertise. Who are you marketing yourself to? MATI will help you with business plans and will give loans at low interest.

Procedural things:
Need to decide what type of business you will be.
Osek Ptur - if you are earning less than a certain amount of money, you don't pay ma'am and very little bituach leumi. (an atzmai is a type of Osek Ptur)
Osek Morshe - you are earning more and do have to pay ma'am and mas hachnasa and more bituach leumi.
Ba'am - when your turnover is more than a certain amount.

You need to find a good accountant who you feel good about working with and will help you open all these tikim. Anglos can explain better, but Israelis can be more aggressive. Know how to work the system, and Israelis can do that better for you. They will help you fill out your end of year reports for mas hachnasa.

Once you open a tik with mas hachnasa it can be very hard to close. You can freeze it but the longer you freeze it the more suspicious mas hachnasa gets and if you try to close it they get more suspicious. They regard you as guilty until proven innocent. They always assume you are trying to hide money from them. You have to do a Hatzharat hon - declaration of assets. Then you have to do this every 5 years and they compare - if they feel you have too much too soon they will think you are taking money under the table. Keep a separate bank account for the business, it's MUCH easier to manage the finances.

Freelancing Options
Many people who offer services rather than goods and do not need to invest in materials for their business prefer to start out as freelancers without opening an official business tik with Mas Hachnasah. Unfortunately, here in Israel there is no easy option to issues official invoices without being a registered business. There is no "1099" option like there is in the US.

Several companies have opened to fill this need. What they do is provide you with invoices from their company that you can give to your clients, all payments go directly to the company, who then takes out their fee (this varies by company so research your options before choosing a company to work with) and all your taxes and gives you a regular tlush mascoret. You are officially employed by this company with no need to open any special tik, but you still have the freedom to build your client base and market your services before deciding if you can make it work and then open your own tik.

This does not affect your brading at all since you can still have your own website, print your own business cards, and market yourself however you want - the client never hears of the company that actually employs you until you give them the invoice. They don't really care who the check is made out to at that point, since many people are operating new businesses under the name of an old one, or market a business name that for some reason isn't registered. Plus many freelancers are now working with this sytem so it's not necessarily the first time a client has heard of this.

More information on this option will be provided soon.

If you do a lot of work with US clients it can be beneficial to open an S-class corporation in the US to be able to generate US invoices for US clients. Speak to an accountant for the best way to set that up.

Restructuring your Mortgage/Debt - by David Baruch, RBS Branch Bank Manager

What is a mortgage?
A mortgage is a very long term loan, against a lien on the property you are living in. A recently passed law requires banks, if they evict you, to either provide housing for 18 months or the equivalent rent. Generally they do not want to evict clients, there is no advantage for them and it makes them look bad. They will try to work it out with you to keep you in the house.

If you see a potential problem, speak to the bank before it becomes worse and it will be easier to work something out. There are three potential situations you may find yourself in:
1) No problem yet but you anticipate a problem
2) You have had a recent problem, and are 2 or 3 months into it
3) You have a serious problem and the bank may have to foreclose

Sidebar: You are only penalized for writing bad checks after 10 bad checks in a 12 month period. If you do your account becomes "mugbal" or "limited" and you can't write checks in that account for a 12 month period. If the problem reoccurs within a three year period in that account or any other account then the individual becomes "mugbal chamur" "severely limited" and cannot write checks in any account for a two year period. This can affect your banking because it will show as a black mark on your credit and can make getting mortgage approval harder. (this does not apply to Hora'at Keva, only written checks).

So if you are currently in a good position but are anticipating a hard time, go to the bank now to refinance. Bear in mind, it may ironically also be a bad time to refinance, because the bank will see that you are in a troubled financial situation and restructuring a mortgage is basically getting approval from scratch for a mortgage. So if the bank doesn't think you are a good "bet" you might be rejected.

In some banks the mortgage branch of the bank, even though it is part of the same overall bank, think as if they are a separate entity completely. In the big picture it might be better for your overall finances to refinance but if the bank doesn't trust that you can make the payments they may say no, even if the regular branch manager thinks it will be good for the client. It will be easier to convince them the earlier you go in to discuss it.

So, can you get a loan at 1.5%? Yes, in certain situations. Long term loans can be cheaper and can ease your monthly payments, if you need it. A short term loan may be prime + 6%, for example, but a mortgage can be prime + 3% and spread over a longer period thereby bringing down monthly payments. So it can be worthwhile to take out that kind of loan.

In the past all loans were linked to the Consumer Price Index (Madad). Loans are amortized - this means that the monthly payments stay the same, assuming nothing else changes (if the payment is linked to the prime rate or CPI then they will change) even though the proportion of each payment that is interest as opposed to principle will change over time. In the beginning you are mostly paying off the interest, and at the end you will mostly be paying off the principle, but the total monthly payments have been divided evenly over the life of the loan.

Types of loans:
1) Linked to CPI or foreign currency
2) Linked to prime
3) Not linked to anything
4) Combination of the options
5) Loan in foreign currency

There can be early payment penalties as well, for CPI linked loans, so you have to decide if it is worth it to refinance given the amount of the penalty you will have to pay.
Prime is 1.5% above the national interest rates, so if the Bank of Israel declares an interest rate of 0.5% then prime is 2%. New rates are generally announced during the last week of each month.

Prime loans only affect the interest, so your principle is never affected. Loans linked to the CPI can raise your principle as well. But there are advantages to both and many mortgages are made up of both types of loans.

You can also get a mortgage linked to the Dollar or Euro. The loans are in shkalim, they are amortized loans, and are linked to the changes in the exchange rate. So if you have a dollar-based income this can be a good choice for you because you will always be paying out based on the same rate you are taking in.

For those who actually get paid in dollars, as opposed to shekels based on the dollar rate, the banks started giving dollar loans. The main difference for this loan is that you are paying equal principle payments plus interest based on the remaining amount of principle, so both your principle part of the payment and the interest part will go down over time (as opposed to the balance discussed above where the payment stays the same over time). Every 3 or 6 months the interest rate is recalculated based on the LIBOR rate. You can generally do a pre-payment with no penalty for a foreign currency loan.

Today, unless you have an actual dollar income it's not recommended to take this loan because currently the LIBOR rate is very low (which means it will go up) and the dollar over time will probably go up, not down but no guarantees this will happen.

Let's say you took a 25 year loan. You've paid back 7 years and now want to renegotiate. Even though you've been paying off interest, as opposed to principle, it may still be worth it because if you have a loan at a higher rate linked to the CPI you may be able to get a lower rate, not linked, and overall that might be better for you. Of course you also have to take into account the pre-payment penalty, so every case is unique and needs to be discussed with your bank.

When you spread out a loan your monthly payments go down but you are paying more interest over the life of the loan. So it's not an easy financial decision as in the long run it may but may be worth it for you anyway in order to enable you to buy a house you wouldn't be able to otherwise afford.

Can you move a mortgage from one bank to another? Generally, yes. "Zakaut" loans (based on where you live, or a young couple buying a first house, etc - a good thing is that you can do pre-payment without a penalty) can't be transferred. If there is a grant as part of that loan you need to make sure you don't lose that and that can be tricky so it isn't always worth paying them back early. Zakaut loans aside, in most cases one bank won't give you part of a loan when the other part is at another bank.

Bridging loans can help when you are selling your house and buying a new one but it can also work against you, so make sure to discuss your specific situation with your bank.

There are fixed rate loans, not linked to anything, but the interest rates are very high. It's a very good idea for someone, perhaps learning in kollel, who knows they will have a fixed income for a long time.

How does the bank decide if you are a good credit risk or not? About 5 years ago banks started using stored information from central credit archives -under government license. They look at bank transactions over a 3 month period - it's not perfect but shows what is going on in a person's life. They look at if there are returned checks, if there are issues with the Bank of Israel, or any other banks. They look at your income, how stable it is (the "tlush" has written on it how long you've been at the place). If you have US income they look at 1040s, or equivalent if you are an S-corp.

Do not overextend yourself - you should not take on more than 30% of your monthly income as mortgage/loans together. If you take on financial commitments that are too high, you have no quality of life, it's not worth it.

Seminars to Help Unemployed Anglos in BS/RBS

The Beit Shemesh Employment Initiative is running 5 seminars to deal with a wide range of issues- you must RSVP to bsemploymentinitiative@gmail.com SPACE IS LIMITED!!!
All seminars are in English
All seminars will take place in the Sheinfeld neighborhhod
All seminars are FREE OF CHARGE

Monday, May 18- Restructuring your Mortgage/Debt
Speaker: David Baruch, RBS Branch Bank Manager
Notes available online
Time: 8pm

Tuesday, May 26- Starting a Small Business in Israel
Panel Discussion with
Sheila Schwartz, store owner- PC Integrity
Gary Swickley, owner export business- Blue and White Kids
Ashley Coleman, self-employed ("atzmai")- Ashley Coleman Plumbing Services
Notes available online
Time: 8:30pm

Monday, June 1- Navigating the System: The Ins and Outs of Lishkat Taasuka and Bituach Leumi

Please note: This seminar is currently on hold, we will let you know if it is rescheduled.

Monday, June 8- I'm Home All Day- what do I do now?
Speaker: Ellen Segal, Life Coach- Identity Crisis: Who am I Without my Job Title
Notes available online
Time: 8pm

Monday night, June 15th - How MATI can help you start a small business
Naomi Saada - MATI, Israel's Small Business Association
Notes available online
Time: 8pm

Sunday night June 21 - Living in Israel on an Israeli Salary
Baruch Labinsky- Financial Planner, Israel Resource Network
Notes available online
Time: 8pm

Create your own Job Opportunity

Having trouble finding a job? Not finding a job you want to do? Why not try this on for size? Create your own job opportunity.

What do I mean by that? Let me give you an example of what I did.

As you probably read in this post about Mey Eden and Tami4 (if not you should read it if you have either one or are thinking about either one), I am a big believer in not drinking water in Israel straight from the tap. When we made Aliyah from Passaic, NJ on the very first Nefesh B'Nefesh flight in the summer of 2002, one of the first things I did was ordered Mey Eden spring water.

There was only one problem. I was right off the plane and could hardly dial a cell phone number much less talk in Hebrew well enough to order something as simple as spring water. It wouldn't have been so bad if a live person would have picked up the phone, but the beautiful Hebrew voice system stopped me at Hello. I remember asking my neighbor to help me order the machine and a few bottles of water which she did.

But that got me thinking. I was probably not the only native English speaker that would want the delicacy of spring water and there were probably hundreds of others who would rather speak directly with a native English speaker then in broken grammar school Hebrew. So I called up Mey Eden headquarters and asked to speak with someone in marketing and I made my pitch.

I told them that I would become their Anglo representative to Anglos all over Israel. I will set up a different number with just English voice mail. They would give me a monthly budget and I would run all the advertising campaigns in perfect English and I told that I was sure to become one of the best salesmen the company had ever seen.

Well he went for the pitch, liked what I had to say and invited me to meet with him the very next day at Mey Eden. I was actually a bit excited. Here I was, just a couple of weeks off the plane and I already had an interview with one of the most successful and recognized companies in the country. It was a job opportunity I was excited about and knew I could do well.

So I went to the meeting (took a cab as I didn't know the bus systems yet) and gave again the same pitch. I was meeting with the decision maker and he impressed. He offered me a job on the spot, but then we came to the salary situation. The truth is the starting salary he offered me wasn't bad, but I wanted to make monthly residual commissions on every client I brought them and he was only willing to give me a one time commission on each sale. This was a deal breaker for me as I felt why should I bring in a client who will be bringing you monthly income for several years and only get paid once? I wasn't even asking a lot, but I knew for me to be motivated and to spend the amount of time necessary for it to be a success it would have to have potential to bring in a big and residual income.

He told me to think about it and so I went home and discussed it with my wife and the next day I called him back and turned it down.

But the point of the story is that I knew my strengths. I knew what would motivate me and what I would like to do. I saw a missing opportunity for a company and so I created a position for myself that they didn't know they needed (and which they still need in my opinion).

So here is my challenge to you. There must be someone reading this blog post who is in need of a job. Read my post on Mey Eden vs Tami4 and then pick up the phone and call Tami4. Explain how you feel you can become the Anglo representative of the company and with the market being what it is you are 100% sure you can not only sell their product to Anglos who don't have any solution, but that you can convince a number of people to switch from bottled water to filtered water. Someone out there can do this and get a job from an opportunity they created with a great company with a great company. Will it be you? Why not pick up the phone and find out.

Nachum Kligman is the Founder & Executive Chairman of Qoof Ltd., The Video Commerce Company. He also writes a blog giving advice to Israeli entrepreneurs and business owners at www.israpreneur.com.

Beit Shemesh Small Business Forum

As part of our efforts to assist local unemployed Anglos, we are setting up a Small Business Forum. This Forum is intended to help people who wish to start a small business. The forum will meet twice a year to review business plans.

The forum's service is 100% free- saving the potential small business owner thousands of shekels

The forum will consist of professionals in marketing, sales, law, accounting and more

The goal is to make sure the business is viable and give the business a push in the right direction

If you would like to volunteer to sit on this forum or present a business plan, please E-Mail bsbizforum@gmail.com

Who We Are

With the current economic downturn, many Anglo residents of Beit Shemesh have already lost their jobs. In March alone, 20,000 workers in Israel were let go. You may already be unemployed or know someone who is. For those of us who were here when the hi-tech bubble burst in 2001, you remember how many people lost their jobs and the financial troubles they found themselves in. Look around: There are less cars with company decals on the roads, more people shopping at 11am on a Wednesday morning because they don't need to leave it till after work Thursday night.

This forum of locals was set up to help Anglos (chadashim or vatikim) who are unemployed. There are many areas they need help with: receiving proper pitzuyim, the process of signing up and receiving unemployment benefits, restructuring mortgages, maybe opening their own business or freelancing etc. We are not looking to do job networking because there are already plenty of job sites and Yahoo groups for that (see resources to the right). We want to help with all the other issues- whether they be financial or social.

There are many local, unemployed Anglos who could use help navigating the system etc. The goal of this network is to help them.

Anyone can contribute - simply look at the list under Contact Us to the right and see where you can help.