Closing a business in the Philippines in the middle of a pandemic

closing a business in the philippines in the middle of a pandemic - Closing a business in the Philippines in the middle of a pandemic

By Patricia B. Mirasol

Closing a business may prove to be more expensive than opening one. That was what Andrew Pasaporte, co-founder of on-demand spa mobile app Sparadic, found out last month when he and his partner, Cha Rapadas, decided to close shop. Spararadic and the spa services in its roster are in the same boat as the 200 permanent business closures tallied by the Department of Labor and Employment during the COVID-19 pandemic.

‘THE FOODPANDA OF SPAS’
“There were several things that we didn’t anticipate,” Mr. Pasaporte shared. “As first-time app creators, we had a high burn rate. By the middle of 2019, we had to slow down our operations and turned our focus on development. Impacted by the pandemic, many of our partner providers have closed due to the lack of business. Spa services are not essential at this time, and our company relies only on these providers.”

Sparadic was founded in 2017 to meet the need for on-demand spa services. Officially launched the following year, its main goal was to become the “Foodpanda of spas” and give users a choice of spa providers to service them on-demand.

“In hindsight, if it weren’t necessary, we would’ve chosen not to register the business immediately. We were excited about the new company that we didn’t think of the eventuality of closing,” Mr. Pasaporte added. “From the start, we should’ve done some research on business closure, a rookie mistake.”

LIKE BEING KICKED WHILE YOU’RE DOWN
Negative cash flow was the reason for permanently closing Sparadic, a non-essential business. “The core of our business is wellness—and physical interaction is required. It is our responsibility to make sure we do not put our users and providers at risk. To put it bluntly, we do not want to promote virus transmission.”

Continued Mr. Pasaporte: “Closing the business has been challenging. It’s like being kicked while you’re down. You suffer twice. First, from your business closing, that’s a given. Then you have to go through all the unnecessary stress of dealing with different offices. The process is similar to registering a business but more tedious. Factor in the pandemic, government offices are not working at full capacity. Also, penalties that you’re not aware of may suddenly appear.”

An additional challenge is the fact that while Sparadic is registered in Metro Manila, the founders are currently in other parts of the country and are thus unable to fix things in the barangay and city where the business is registered.

A CONSIDERABLE AMOUNT OF LEGWORK AND RESOURCES
Closing a business requires a considerable amount of legwork and consumes a lot of resources.

“We spoke to two companies who offer legwork for business registrations, and asked if they also do closures,” Mr. Pasaporte said. “One was a virtual office, and the other one’s main business was just to assist people with government offices. The quoted fees were between P25,000 and P30,000: too expensive for a business that’s closing. Ideally (if this was pre-pandemic and we were in Metro Manila), we should be able to bring the costs down to maybe a quarter by doing the government queues ourselves.”

“There’s also the BIR, and you might be slapped with penalties you were not expecting. You can appeal your case, but it still can be a stressful ordeal. We can only dream that one day our government offices go fully online, and we don’t have to go through all the bureaucracy. It’s a unique time and everything seems more difficult.”

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ADVICE FOR THOSE IN THE SAME BOAT
Among the pieces of advice Sparadic’s founders gave included saving up for closure and a lot of patience with the process, as closing a company officially may take years.

Mentioned too was the wisdom of seeking advice from peers and mentors: “We’ve received a lot of support from members of the Startup PH Facebook group. LegalTree, one of the startups in the group, reached out and gave us great advice. If anyone else wants to extend a hand, we’d really appreciate it.”

As Mr. Pasaporte reflected, “While we had to close, the business journey has been a great learning experience overall. It has inspired us to adapt and venture out to other businesses.”

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