1 Costly Mistake when Buying a Business in Ecuador

 

When I first bought the Guayaquil hotel business with a friend of mine 2 years ago I made this mistake.

And it was costly.

And I see a lot of foreigners who buy in Ecuador do the same thing cause they’re ignorant of Ecuador employment law.

The mistake I made was I didn’t ‘clean house’ and start new with my own employees when I bought the business.I inherited one employee from the past regime who stayed on.  For a while.

I didn’t realize the mistake I made until I had to let him go.You see, in Ecuador when you fire someone, or lay them off, or they leave, you have to “liquidate (liquidar)” them.Meaning you have to pay them a lump sum severance payment equal to 25% of all the money they’ve made while working for you.

For instance, for a minimum wage worker in Ecuador making $318 a month, letting them go after one year of work would mean a mandatory severance payment of about $900.

So what most Ecuadorians do, and what you must do too when buying an active business in Ecuador, unless someone is actually vital to the business, when you buy a business in Ecuador have the previous owner liquidate and get rid of everyone.

It may not feel good, but “negocios son negocios” (business is business).

Because if you keep them on whenever it is they leave you will now have to pay them the liquidation payment for the entire time they have worked for the company, even though the company changed hands, doesn’t matter.  And the employee can sue you if you refuse to pay it.

But the person selling you his business won’t tell you this!

Oh no, he’ll say things like you should keep the employees, they’re great workers and very loyal… yea, yea, yea.  After all, it’s better you liquidate his employees after he’s out of the picture than him now.

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