4 Tips to Incorporate a Retail Business in HK

While the Hong Kong company incorporation process is well documented, each company may come across hurdles unique to their industry. Although retail is among the most popular industries in Hong Kong, what is required to incorporate a retail business is dependent on the products the company will sell, and the goals businesses want to achieve. In this article, we look to provide essential tips on what Hong Kong retail businesses must consider when first incorporating their company.

1. What Business Licenses You Will Need
Hong Kong businesses are not ready to operate the moment they are incorporated. Business owners must ensure that they have acquired all necessary business licenses required for their intended business activities. For retail businesses, the relevant licenses are dependent on the goods that a business is dealing with.

As the regulation of certain products are overseen by varying Hong Kong government departments, retail businesses can check which licenses they will need here. While there are many unique licenses required, retail companies will commonly need to apply for import & export licenses.

Making sure your business has all the necessary licenses will improve how fast your business can begin its operations. Failure to acquire the correct licenses can potentially result in lost revenue, which may be especially damaging if the business is attempting to acquire licenses that are difficult to obtain.

2. How to Plan Your Finances
Businesses of all sizes must carefully plan how they will obtain and utilize their finances. For business owners, this is among the most stressful aspects of running a business. To get started, simply take time to understand the initial costs that must be incurred, the project sales a company expects to make and the projected cash flow of a business.

Initial Costs
Initial costs refers to the costs necessary to be incurred before your business can begin operating. For a Hong Kong retail business, these costs typically include equipment and supplies, costs to obtain business licenses and permits, inventory costs and employee salaries.

While some costs will be well-defined in their amount, such as application fees for business licenses and permits, others may not be. However, by simply identifying what costs must be incurred, business owners will be able to set more accurate goals for themselves and their business.

Project Sales
In order to make smart business decisions, a business owner needs to know where their business is headed. To strengthen one’s outlook on their business, they need to be able to estimate the amount of sales they expect to make.

Because there is a close connection between sales and expenses, looking at the past patterns of a business can provide tools that will allow individuals to create more accurate budgets and manage their business expenses. One such example of how sales projections help is that they provide greater certainty in regards to how a company is fairing in regards to meeting their break-even point.

Cash Flow
A business failure is more commonly attributed to improper cash flow management than it is to a lack of profitability. In order to satisfy their cash flow obligations such as salaries and rent, businesses must proactively take steps to understand and manage their cash flows. Common ways to do so are:

Stay on Top of Invoicing
The longer an invoice is unpaid, the higher the likelihood of a business never receiving payment. Reducing the time between sending an invoice and receiving payment can make a big difference.

Manage Your Business Expenses
Conduct regular reviews of your business expenses to help identify costs that can be cut, or encourage you to take alternate actions. The use of cloud-accounting platforms can assist greatly in this due to their ability to integrate with various third-party platforms – thus providing business owners with high levels of transparency on their company health

Build a Cash Reserve
Cash reserves can help smooth over any fluctuations in a business’ cash flow as a result of seasonality, loss of major revenue streams or other causes. Simply set aside a ratio of your profits and a cash reserve should slowly accumulate.
Being able to rely on emergency funds can not only help with cash flow issues, but can also provide a greater sense of security for business owners as unforeseen circumstances may no longer derail their business.

3. The Implications of Your Company Structure
Deciding on the most appropriate company structure for a business is essential during the company formation process. As company structures will dictate how a company operates and the extent of liabilities that shareholders may find themselves in, the most appropriate structure is the one that best facilitates a business’ short and long-term goals.

In Hong Kong, a company limited by shares is most commonly used by SMEs engaging in retail activities due to its ability to offer strong protection to shareholders. For those who wish to

Because each company structure has their own strengths that may or may not work advantageously to specific industries / business models, take time to consider what your company needs and how it wants to achieve these goals.

4. How to Select Your Store Location
As the age-old adage goes, “Location! Location! Location!” This saying holds a lot of truth – especially for retail businesses who have a brick and mortar storefront. To select the most appropriate location, one must understand their customer and product as the right location or their store be dependent on who you are selling to, and their buying patterns.

Firstly, recognize whether your business is dependent on exposure, or if it is a destination.

Exposure
If your product is one that is typically purchased impulsively, then there is a high chance that your product is not very distinct from its competitors. As such, spending more to lease a high-exposure property can help attract attention to your business and your products.

For businesses who are active in a highly competitive industry, it may even make sense to structure your business model as an e-Commerce business!

Destination
If your product is unique enough, you don’t have to worry so much about selecting a location in a high-traffic or high-exposure location. This is because your product is different from your competitors, therefore customers will have a higher incentive to come to you.

Companies who fit this category are most likely those who sell high-end or unique products that are challenging to find anywhere else.

Conclusion
Even though it is not challenging to incorporate a Hong Kong company, there are many finer details that one should consider. This is especially true for retail companies given how competitive the industry is. Regardless, with careful preparation, a flexible mindset and the ability to make decisions, you too can start a retail business in Hong Kong!