So you want to start a SaaS business in Germany
That’s great! You probably have an exciting idea with great potential. What’s most critical is that you can spend as much time as possible focusing on your customers and core problems. When you think about your business there are things that are core to being successful, and then there are chores that need to be done regardless of your progress or success. There’s a wealth of great resources easily available to help you build a great product, and you likely have some great ideas already about how to do that. But how will you handle the chores – all those things that aren’t really part of the business concept, but are required anyway? And how big of a workload is it for a new founder?
Let’s imagine we want to form a new SaaS business here in Germany. There’s three major categories your time and money will pour into:
Starting the company
Operating the company
Enabling the company
Starting the company
To start a basic SaaS company you need to do at-least 3 registrations with government agencies: the business registration, the tax registration, and the value-added-tax registration. At this point in time, to do it correctly, you also need to solve things like what rules or by-laws your company will have, and things like how equity is split between founders. This is especially important if you want to pursue raising money. The forms are all online, and doing this all on your own for the first time will probably mean you want to research things like the different corporate forms and picking the right one for your needs (GmbH, UG, and AG are just the surface). You’ll need to research (did you know forming a GmbH requires 25k Euros?), fill out the forms (what is the right way to write a description of your business to not confuse the tax authority?), and pay the fees involved. Most of all, you’ll have to wait. Some common experiences are 6 calendar weeks of waiting time to get it all done, and it might even take longer. You will also need to register the business with the official business registry. Expect to spend at-least 1-2 days of raw effort on this and a business registration fees under 300 euros (but there may be more expensive options). And you better remember to do this. There’s shark lawyers who like to scrape the web looking for websites that don’t comply just so they can hit these businesses up for money.
Oh, actually, before you can complete any of that you need to acquire a business address and phone number to register with. It’s a legal requirement in Germany to list these on your invoices and publicly on your website. Unfortunately, you can’t use a PO box because the German courts have interpreted an EU directive to mean that PO boxes are not acceptable business addresses… and at the same time, an Advocate General of the EU has (with more words) said that that’s not what the EU directive said, and changing this requires someone stepping forward to challenge the German government in court and winning. So you need an address. Oh, but you probably don’t want to use your home address because this is legally required to be on your product’s website and you don’t want random people knowing where you live. Ok, so you need an office. There’s some great offices out there, but if you don’t really want an office there is a good alternative called a “virtual office”, some of them are better than others. So you’ll need to spend time to find one you like and sign a “rent” contract with them. Best case scenario is a half day and 50 Euros a month. For the phone number? You can get a VoIP phone or a 3 euro sim card, but consider upgrading this if you think you’re going to have regular customer support needs.
One more thing you need to do is find a good bank account. This is required for your registration with the finance office. There’s a lot of new and hip “start up banks” that rise and fall in the blink of an eye, many of them don’t even secure your money by being “not a bank” to skirt the strong financial regulations designed to protect you. More reputable and established banks often move slowly and want an in-person appointment to verify who you are. You should expect a half day of reviewing different offers and about 10 Euros per month in fees.
With the easy topics crossed off, let’s look at solving our taxes. When you create the company you are expected to peer into a crystal ball that tells you your future income so you can report that to the financial authorities in advance, so you will need to decide (guess) on what number is realistic, and also understand the tax implications of that choice and be ready to fulfill them. Also as you transition to a founder, your employment status has changed, so you need to report to your health insurance company what your new income is so they can deduct that from you every month. Additionally, your German retirement pension fund needs to understand how you will continue contributing and how much. You can do all of this on your own and expect to invest maybe 2 days total over all those topics, or possibly hire a tax professional to support you for a half day of your time plus a few hundred Euros (with the range depending on who you hire and how good they are).
Often new founders want to have a proper lawyer review everything too, in order to ensure they aren’t doing anything foolish. Depending on the type of legal support you get, you can expect to pay anywhere from 300 Euros up to 3.000 Euros and a day of your time just to get the company created. In the next section “Operating the company”, we’ll see there’s even more legal expenses ahead. On top of this, founders should figure out the equity split up-front, because only one person in the incorporation can make things very challenging. If for example, the company is valued on paper at 2m Euros (for fundraising purposes or otherwise), and you want to give a co-founder 10% of the company, this co-founder will now owe taxes on a 200k Euros profit for that fiscal year. Doing things up-front is also challenging and takes time, guidance, hard conversations, and thoughtfulness. Doing them later can cause a massive financial hit to one of the founders when they get their shares officially.
Moreover, the terms of how exactly voting shareholders and the board of directors will manage the company needs to be written and managed. In the case of a single shareholder this is irrelevant, but with multiple parties it is not. So drafting corporate Bylaws is one of those things that will become really important to firmly set the purpose, requirements for membership to the board, the titles, responsibilities of each role (CEO, CFO, CTO, etc), how those roles are given, how meetings will be run, how often meetings will be run, etc. The worst case scenario you can enter into is someone with voting rights holding the company hostage a year from now because there are no bylaws.
Multiple times in-between all these steps you will need to find and book a Notary who will take different fees for different tasks. Creating the company, issuing shares, changing bylaws, and possibly more.
All in all, if you do everything on your own, you should expect to spend 1.000 Euros up-front, an additional 60/mo, about 40 hours of your time, and everything will take place over a 4-8 week time window. Unfortunately, you’re not done yet. You only have a legal paperwork shell of a company. Nothing in your business is actually operational at this stage.
Operating the company
Now that you have the legal entity created, you have to put a lot more in place to run it correctly. We’re talking about all the stuff that has nothing to do with your core product and everything to do with running a business: HR topics, insurance, performing transactions, doing bookkeeping, and keeping things legal.
The moment you start dealing with customers they can sue you. The moment people work for you they can sue you. Even non-customers can sue you. You need to ensure you are correctly insured for your level of risk. Do you have an office space? You now need insurance to cover damages to it, and injury to employees or visitors. Did you provide advice? You need insurance that nobody can sue you for damages from bad advice. Did you unknowingly expose yourself to being sued for reputation damages in some extreme marketing campaign? What happens if your expensive laptops get lost or stolen? There’s a special insurance for each one, and you need to find a provider that really fits your needs. Some providers are better at catering to some businesses than others (for example, one provider’s “IT-services” package might only offer insurance coverage for damages to an office building, and what might be more important is protecting against lawsuits, data breaches, and GDPR claims). You’ll probably spend a day looking over different offers from everyone and looking for the right mix of insurances to cover your business. Even more if you want a lawyer to review and verify you have the right ones. Usually you’ll spend 50-100 Euros per month on this, and hopefully only 4 hours of research.
Now we need to get all our products correctly ready for sale. It’s one thing to have a customer say “yes”, it’s another to comply with EU Consumer Rights Directives for B2C topics and drafting proper agreements for B2B contexts. It’s also a challenge to draft a fair contract that protects both parties (contracts deemed to be “one-sided” can sometimes be thrown out by a judge). There’s a lot of free templates floating around on-line but using one found on a search engine is questionably risky. Some lawyers might draft one for you, but this is also something you will likely need to change over time as your products and services change. You also need to understand the basic rights provided even without a contract to ensure your sales (and refund) processes are legal. Once you have this solved, you also have to figure out how to collect money. Will clients do an IBAN transfer to you? Will you use a payment gateway? What happens when a payment is late? Will you work with a collections agency or an invoice factoring company? Expect to spend 2 full days researching everything.
And that brings us to the next point: What exactly goes on the invoice? If you’re in Germany and have both B2C and B2B customers world-wide you need to observe all the different rules, because every combination will create a different invoice (by the way: your web app will need to let customers put in their tax IDs too). If you sell to the US do you charge 0% tax and put “reverse charge” in the invoice, or do you put the specific State tax of the purchaser on the invoice and remit the taxes to the US government somehow? And how do we remit taxes to the US from Germany? What about the UK? What if they have an EU VAT number? What about sales from Germany to France when we have made more than 10k Euros in sales to France in a 12 month period? Once you sell abroad in higher volumes you’ll need to register with the tax agency of each country you sell to, and even if you register with MOSS to resolve sales tax, you may still have other forms of taxes to pay depending on your type of business. Discovering all the rules for invoicing can be very complicated. In general, every combination of product, service, customer-type, 12-month-sales-volume (specific to each country you sell to) creates different rules for the taxation and notes that must appear on an invoice. There’s software systems that do a good job at solving this but I haven’t seen one that does it perfectly yet. You’ll also need to make decisions like if your company will be taxed on target or actual income, identifying what correct taxation category to use (there’s many, many “accounts” to book expenses and income into, and each has a different meaning for tax purposes). This leads a lot of people to hire a bookkeeper which can cost anywhere from 200 Euros per month for tiny invoice volumes, and thousands for higher volumes. Besides, mistakes happen too, so you’ll need someone who can fix your tax submissions and make the Finance office happy with you again. You should probably find and hire a real tax advisor to do your year-end submissions too. Expect to also invest at-least 2 full days into fully researching everything (and another 2 to re-learn and correct everything you were wrong about).
What good are invoices without customers to invoice? When you sell to regular consumers (B2C), you must learn about and implement practices that follow all of the EU “Consumer Rights Directives” and local laws designed to protect consumers and fine bad actors. They cover everything from marketing, up to to how you handle refunds and complaints. In a B2B case however, you will likely need to form well defined contracts to cover off all the edge cases, and documents that explain your policies and practices around refunds, returns, complaints, etc. The bigger the customer the more complex legal topics become, including asking for things like a statement that all data remains inside the EU, there are measures in place to uphold GDPR (request data, request to have all data removed, cookie banners, ensure customer data doesn’t get leaked, etc). In addition to this, any website you run needs to have a Terms of Use, Privacy Policy, and Imprint section in the language(s) of your website. They also need to be more than documents, but mirrored with actual practices of how customers are serviced, how their data is handled, etc. Learning all these things, implementing processes, and tools to manage them can also be a major time sink. What’s worse, you can easily misinterpret something here as the wording in these directives (and even the training material) can get quite confusing and sound like legalese. In every case, you will need practices and agreements that describe the goods or services provided, what the expectations are, warranty, price, and other factors along these lines. There are boilerplate contracts you can find online, but they probably are not a great fit for your case, so you’ll want to find another lawyer who can walk you through this topic too. It makes sense to get a lawyer on a small retainer to handle customer complaints that you cannot resolve. You’ll even need someone to regularly refresh your documents to ensure they reflect the existing business. You should even have someone look over your shoulder so you don’t miss little laws that nobody directly tells you about like VerpackG, things that are their own mountain of complexity like getting trademarks or patents (if you need them).
To service your customers you will probably need to hire people. Either regular employees or contractors. For contractors you need yet again contracts: work agreements, data security, NDAs, etc. For employees you’ll also need employment agreements, and ensure they get all their base topics paid: pension, health insurance, employment tax, and other taxes. Something really easy to miss at this stage, especially for founders not taking a salary, is they forget to register with the German Pension and their Health Insurance to inform them of their changes and set up a new payment plan with each. These contracts have big implications because employment laws are quite strong in Germany, so you’ll want all of that to be fair to both parties but also cover your interests. This also means you’ll need a great interview process right away to avoid expensive mis-hires.
Lastly there’s a lot of great funds and grants available to new businesses in Germany, so it’s important to make sure you can quickly apply for this funding which will help your business grow and improve your cash flow. Researching and applying for all of these however can consume a massive amount of time and effort.
Enabling the company
So far you have a company that legally exists and is ready to do business. There’s still more work to do because there’s no existing ways for customers to actually interact with you, or for you to do work internally. You need tools and services.
Simply to keep things secure and organized internally you’ll want to start off with a password manager, this isn’t so complex but it is important to pick a good one that’s easy to use and hasn’t been hacked. About 3 euros per month in the simplest case.
You’ll also need to have a line of communication. On your website Imprint there must be a phone number for people to call in order to comply with all the laws. So the simplest option is getting an inexpensive phone with an inexpensive sim-card and using that. You might be able to find a VOIP provider but most of them are a more expensive option by the end of the year. It’s unlikely anyone will ever call this number, but you need to have it. If you spread out the costs, this can be as low as 5 euros per month.
Now you’ll need to send emails and do other office work like writing documents and spreadsheets (what kind of self-respecting business doesn’t have a few spreadsheets?). The best option is to go for a cloud suite of tools from Google or Microsoft, or possibly one of the other smaller brands. Best-case scenario, this will cost you 5 euros per month per person.
If you have a team or need to collaborate with others, you’ll want a chat server and video calling. This might be included with some office suite options, but if you want something like Slack expect to pay 8-9 euros per person.
When working alone or with others, you will need a system to keep track of work to do. You might be able to get away with a google sheet or a sheet of real paper, but generally most people will use a Kanban system like Trello or Jira, or alternatively a system like Monday. Expect another 10 Euros per person.
Your customers will need some form of support as well. Things go wrong, or questions pop up. You can build everything on your own which is time consuming, but it would be more cost effective to buy some support tooling such a Zendesk for 50 Euros per support representative per month. You can only go up from here, including training outsourced staff to handle your first level support problems which increases your customer satisfaction and keeps you a bit more focused on other topics (like sleep).
You will also need a way to roll out your marketing platform, including generation of content. You’ll want a company page on LinedIn, a Sales Navigator account so you can reach out to possible clients, maybe a Canva account to create content images for different social media channels, and more. It would also be good to have a marketing agency you can work with to build a proper marketing strategy and fill it with the right content. Also let’s not forget the most basic marketing: your “brochure” website, which explains your business value (not the actual SaaS you are building). Costs here can range from €50 per month up to 300 depending on your needs.
Finally we come to the last key: The technology. Even before you get started with building the thing your customers find valuable you will need to pick and set-up a place to store your code (Like Gitub or Gitlab), a place to host your brochure website (along with listing it on google and doing user tracking), and a place to host your app. Your actual app will also need a number of “commodity” features, like having a CI/CD pipeline, monitoring software, something to handle users & auth, search, billing (changing plans, sending invoices, canceling plans, quota limits…), sending emails and other notifications, multiple languages, user onboarding workflows, and more. None of these features are really the reason customers show up for your product, but you’ll somehow find that you need most of these anyway to build a modern web app. Even other choices like how to pick a database and host it cost extra time, money, and decisions to be made. On top of that, you might even want to try and source a few developers to help build things, which can also turn into many more small tasks to take on (writing the job requirements, finding the right staffing agency, doing all the interviews, etc). Costs here can range anywhere between €75 per month up-to €300 depending on what solutions you pick and how complex things become.
Doing the part of your business that customers actually care about
Now, if you’ve done all that you only have to worry about the absolute fundamentals of your business: sales, marketing, and building a product. All the other stuff mentioned above directly takes away from the time and resources you can dedicate to your core business. It’s death by 1000 papercuts before you even start.
What’s it all cost?
There’s three stages, and four kinds of cost
| Calendar Time | Effort Time | Money One-time | Money Recurring | |
|---|---|---|---|---|
| Starting | 2 months | 40 hours | €1000 to €5000 | €60 to €100 |
| Operating | 2 to 3 weeks | 72 hours | €1000 to €5000 | €200 to €300 |
| Enabling* | 2 to 3 weeks | 30 + 160 hours | €0 to €1000 + €25k | €150 to €700 |
| Total | 3 to 5 months | 142 to 300 hours | €2000 to €35k | €210 to €1100 |
*Integrating all the base technology from every provider will cost you some blend of160 extra hours and €25k in development costs (on average — your actual rests can vary drastically based on scope).
That means you wait 5 months before you’re fully set up; invested nearly one month of full-time work into something other than your core product’s discovery, development and marketing; invested a hard €35k, and burn 200 to 1100 Euros every month. After this, everything else is pure product development.
There’s a lot of companies who will help you formulate your product value, business plan, and other topics, however, there’s few and far between that will get all this “overhead” settled for you.