Mistakes to Avoid When Starting a Business in Hungary

Published on and written by Cyril Jarnias

Hungary offers numerous opportunities for foreign entrepreneurs looking to establish their businesses there. However, embarking on an entrepreneurial venture in this Central European country requires careful preparation and a good understanding of the local context. Here are the main mistakes to avoid to maximize your chances of success.

A Sloppy Business Plan: The Trap of Insufficient Preparation

The most common mistake when starting a business in Hungary is diving in without adequately preparing your project. Many entrepreneurs underestimate the importance of a solid and detailed business plan.

Yet, this document is essential for several reasons:

  • It helps clarify your vision and strategy
  • It serves as a roadmap for developing your business
  • It is essential for convincing potential investors or partners
  • It helps you anticipate challenges and funding needs

To avoid this trap, take the time to conduct thorough market research in your target sector in Hungary. Analyze local competition and precisely identify your target audience. Quantify your goals and financial needs for at least 3 years.

Don’t hesitate to seek guidance from local experts to refine your business plan. The French-Hungarian Chamber of Commerce and Industry can particularly assist you in this process.

Good to know:

A well-prepared business plan increases your chances of success by 16% according to a Harvard Business School study.

Poor Cash Flow Management: Beware of Lack of Financial Rigor

Another common mistake is neglecting the financial management of your business, particularly cash flow. However, poor cash flow management is one of the main causes of bankruptcy for young companies in Hungary.

Several pitfalls should be avoided:

  • Underestimating working capital needs
  • Not anticipating customer payment delays
  • Misjudging business seasonality
  • Neglecting regular account monitoring

To prevent these issues, establish detailed cash flow forecasts for at least 12 months. Closely track your inflows and outflows. Build a cash reserve to handle unexpected events.

It is also recommended to work with a local accountant who understands the specifics of Hungarian taxation. Hungary offers a favorable tax system for businesses, including a corporate tax rate of only 9%. But the rules are complex and change regularly.

Good to know:

According to a study by the Hungarian Central Bank, 60% of business bankruptcies are due to cash flow problems.

The Administrative Maze: Watch Out for Regulatory Oversights

Hungary has significantly simplified its administrative procedures in recent years. Nevertheless, many foreign entrepreneurs still underestimate the complexity of local regulations.

Here are some essential points to watch:

  • Obtaining necessary permits and licenses according to your activity
  • Compliance with hygiene, safety, and environmental standards
  • Formalities related to hiring Hungarian employees
  • Tax and social security reporting obligations

To avoid any oversight, work with a Hungarian business lawyer from the start of your project. They can guide you through administrative procedures and ensure you comply with all current regulations.

Also, don’t hesitate to contact the Hungarian Investment Promotion Agency (HIPA). This government body offers free support to foreign investors.

Good to know:

Hungary ranks 52nd worldwide (out of 190 countries) for ease of doing business according to the World Bank’s Doing Business 2020 report.

Ignored Competition: The Mistake of Not Taking Rivals Seriously

Many foreign entrepreneurs tend to underestimate local competition in Hungary. This is a mistake that can prove fatal. The Hungarian market is indeed increasingly competitive, with a growing presence of international companies.

To avoid this trap:

  • Precisely identify your direct and indirect competitors
  • Analyze their strengths and weaknesses
  • Study their positioning and marketing strategy
  • Clearly define your competitive advantage

Don’t hesitate to visit in person to observe the market directly. Attend trade shows in your industry. Meet local players to better understand the specifics of the Hungarian market.

Also consider adapting your offering to the expectations of Hungarian consumers. Consumption habits can differ significantly from those in Western Europe.

Good to know:

According to a study by the Budapest Chamber of Commerce and Industry, 35% of foreign businesses that fail in Hungary had not sufficiently studied local competition.

The Winning Strategy: Plan Ahead to Succeed

To maximize your chances of success when starting your business in Hungary, here are some additional tips:

  • Learn the basics of the Hungarian language: this will facilitate your relationships with local partners and clients
  • Build strategic partnerships with local players
  • Invest in training your teams
  • Stay flexible and ready to adapt your model if necessary
  • Cultivate patience: success takes time, especially in a new market

By avoiding these common mistakes and following these recommendations, you’ll maximize your chances of success in your entrepreneurial adventure in Hungary. This dynamic country in the heart of Europe offers great opportunities for bold and well-prepared entrepreneurs.

Good to know:

Hungary recorded economic growth of 4.9% in 2023, one of the highest in the European Union.

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About the author
Cyril Jarnias

Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.

On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.

Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.

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