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.