Starting a Business

Concept , Systems, Action

This information is of a general nature only. It does not provide legal advice nor should it be relied upon. If you have specific legal questions you should consult an Accountant or lawyer."

What kind of business ? Do Something you have knowledge of or have

done previously Do Something you love to do or have a great

motivator Look for a niche not currently filled by a

company now or an opportunity to provide a better product or service

You will need to have passion about the business to carry you through the challenging times

Concept

Be honest about the skills you have and make notes

Determine what skills you don’t have that you will need to run a business

Make a list of the skills you don’t have and think about which ones you can learn sufficiently to do the job until you can hire people

Determine which skills you will need to hire a contractor or professional for. You may need to consult with or hire an Accountant, Book Keeper, Sales, or Social Media person depending on your skill set and industry

Skills and Drive

Sounds like a great idea but is there money to be made?

Now you have to look at the Market and see if your business makes sense in the real world

Who are your competitors?

Know thy enemy find out everything you can about your competitors and what they do right and what they could do better

Find out where they market and who they market to

Maybe there is a small part of the market they aren’t doing a good job with and you have an opportunity to carve out this part of the market for your business

Determine how long have your competitors been established and if they are striving or surviving

Research

Learn about the business and the upsides, downsides and the laws that govern that business

What kind of taxes will you have to pay and what will you need to do the track or bill for that tax

Taxes unpaid could put your company in jeopardy just when you start to see it moving forward so don’t ignore this research

Research

Almost half of businesses in Canada go bankrupt because they don’t develop their skills

Statistic Canada shows business fail because of weak financial, general and marketing skills

If you try to do everything on your own it will make it harder to succeed

Consider working in the industry for a few months before starting your business to learn as much as you can

Align yourself with mentors that can give you sound advice

Don’t be a Statistic

Now that you’ve done your research you have some idea of the numbers

You need to do up a simple financial plan to see if you can make profit after you cover your costs of doing business

Determine what you can charge for your service or product based on the market

Determine all your costs associated to the product or service including taxes

How much business do you have to do to be profitable and how much gross margin will you need to make money on a sale?

Don’t forget to include up front capital costs for any equipment or costs for setting up the office

Systems – Business Plan

Take the research and create a market plan so you know how you intend to sell and advertise your product

Think how you can be strategic based on the information you gleaned from your competitors

How much will it cost to advertise and how often will you have to send out mailers, emails, social media or telemarketing to be effective and relevant to your customers

Systems – Marketing Plan

Now that you’ve done your research and your business plan what’s next?

Provided you have an opportunity to make money at your business or at least get some experience from the business to secure a job later you are ready to think about the structure

You basically have three options to consider when setting up a company

Incorporation, Partnership or Sole Proprietor

Systems – Incorporate, Partnership or Sole Proprietor

IncorporationsAdvantage Disadvantage

Advantages are limited liability for debts of the company in some cases

A tax deferral is possible by retaining earnings in the corporation.

  The $500,000 capital gains exemption

available for sale of a small business can only be claimed on the sale of shares of a qualifying corporation and not for the sale of a sole proprietorship or a partnership.

Net income of a sole proprietorship or a partnership is taxed to the owner. A corporation is a separate taxpayer with its own tax rates.

A loss earned in a corporation cannot be transferred to its shareholders. 

Losses in a corporation can only be offset against earnings in that corporation.

A corporation is subject to rules governing the taxation of shareholder benefits, such as shareholder loans or the use of a company car.

Cost to file tax returns can range from $1300 - $1500 annually

Sole ProprietorAdvantage Disadvantage

You can operate a sole proprietorship under your own name, or under a Trade Name . You can’t add any of the legal designations such as Ltd. or Inc.

One of the biggest advantages of a sole proprietorship is that setting up and administering the business is comparatively easy and inexpensive. 

In most provinces, if you choose the sole proprietor form of business ownership and operate it under your own name, you don't have to register your business.

If you register your sole proprietorship with your province it's less expensive to register than a corporation

As a sole proprietor, you declare your business income on your personal income tax, rather than filing a separate tax form

a sole proprietor or partner in a general partnership has unlimited liability to creditors of the business

if your business fails, any of your assets, including your personal assets, can be seized and used to discharge the liability you’ve incurred

disadvantages of sole proprietorships include a lack of tax flexibility

the increased difficulty of raising money

PartnershipAdvantage Disadvantage

currently in Ontario, only lawyers, chartered accountants and certified general accountants may form a Limited Liability Partnership.

A partnership can sign contracts and borrow money in its own right, which eases some of the liability burden a sole proprietorship would bear

If one partner has skills and talents the other doesn't, a partnership can truly be a match made in heaven.

same tax simplicity that sole proprietorships have

Partnerships do not have to file separate income tax returns or pay separate income tax

a sole proprietor or partner in a general partnership has unlimited liability to creditors of the business

in a general partnership, one partner can be held responsible for all debts and obligations incurred in the name of the business by another partner

As a partner, you can also be held responsible for any wrongful act or omission by other partners acting in the ordinary course of the firm's business - which can be a serious disadvantage.

partnerships can be the messiest, most acrimonious form of business ownership to dissolve.

If you do decide to form a partnership of any type, a partnership agreement is essential

Once you decide which type of company you may need to register the Trade Name as a Sole Proprietor or the Incorporation

Both can be done online and the cost for the Trade Registration is $179 to $200

Incorporations are more expensive and range from $479 to a thousand dollars depending if you use a lawyer. It isn’t necessary to use a lawyer to incorporate you can do it on line or at Staples Business Depot

Partnership require an agreement which you can pay a lawyer for and there are legal documents available on line as well

Systems

You will need systems in place to make sure the company runs smoothly

You will need some type of accounting software to maintain the books and make it easier to send it to an accountant for your taxes and to issue invoices and keep track of payables

Two that are favoured are Quick Books and Simply Accounting and you can purchase it online or in many business supply stores

You will need systems in place for sales and marketing and expenses

Systems – Internal

You’ve done your research, business plan and have your systems figured out if not purchased, now how do you finance your business?

This depends on the type of business you have and how lean you can operate until sales are coming in

Determine if you have an assets to use as collateral and if your current credit will allow for credit that is personally guaranteed

Often new companies that are incorporated will still have to personal guarantee many bank loans or lines of credit in the beginning when the company has no history or equity.

Action – Secure Financing

Use personal credit history to secure a line of credit or loan from the bank

Borrow money from family, friends, or potential investors

Business Development Bank of Canada has a business loan for start up companies check out www.bdc.ca

You can look into Government loans available in certain sectors

You can subsidize employees in some circumstances to assist with growth

Factoring or accounts receivable financing is a viable option for start up companies www.newportfunding.ca

Leasing companies to assist with leasing both office equipment and manufacturing equipment

Financing Options

What is your biggest challenge in running a small business?

Cash flow - 51 % Marketing - 21% Managing staff - 10% Work-leisure/Family - 18%

CBC 2011 Report on Small Business

For more information on small business and tips refer to a government of Canada website for resources and information.

canadabusiness.ca/eng/page/2716/

http://canadabusiness.ca/eng/page/2716/

Canada Business Network

Stats Canada reports 63% of new businesses survive to the second year in Ontario

Only 35% make it to the 5 year and these numbers may be over stated

Many companies never go into bankruptcy because of the cost and they just go dormant until they die a slow and tragic death.

Ontario Survival Stats

Be prepared to work harder and longer hours at least in the beginning

Follow your dreams and aim high thinking small won’t give you the drive to keep fighting

Keep looking for resources to improve your skills so you’ll be ready to take your company to the next level.

Conclusion