Starting a new business can be one of the most exciting and life-defining events for those with the courage and fortitude to strike out on their own. The rewards are potentially significant not just financially but in terms of lifestyle and freedom, particularly given the instability of traditional ’employed’ careers these days.
It is not surprising that more people are taking the plunge. In 2011 2.67M people were self-employed, representing 15.4% of the working population (Source: Industry Canada SME Research and Statistics).
However, starting a business is also fraught with difficulty and endless challenges. Navigating the maze of government regulations, legal, tax and accounting issues can be overwhelming and it is vital to get professional support and advice at an early stage.
The purpose of this article is to provide a brief overview of the key steps and issues to consider when starting a business:
Assess Your Own Qualities
Successful entrepreneurs from all backgrounds share one common attribute – passion for what they do. Consider whether you have the traits to succeed in your own business. Apart from passion and self-belief, you should be resourceful, creative, a good communicator, possess a strong work ethic and be tenacious even in the face of failure. These are just some of the qualities you need to succeed in business.
Research Your Market
It is vital to consider whether there is a market for your idea, product or service.
You need to consider whether your offering is original and whether the market would be prepared to pay for your product or service. Who are your competitors and how will you differentiate yourself?
Conducting market research at the beginning will save lots of wasted time, effort and money. It will help you define your target market and your ideal client.
Develop a Business Plan
You would not drive to a new destination without a map, so why develop a business without a plan?
Studies show that entrepreneurs who commit their business plan to paper are more successful. It helps you to think through your business, fine-tune your ideas and think in a structured, disciplined manner about your targets and achievement goals. Building a strong plan is the best foundation for a successful business, your ‘road map’ to achievement.
Assemble a Support Team
No successful entrepreneur ever sailed solo. Building a network of advisors is critical. They can range from your social network, family and friends to act as your ‘cheerleaders’ through to the professional advisors. These are likely to include legal, accounting and tax services, but will also extend to financial planning, insurance, marketing, web development and much more. Having a strong network of professional advisors and mentors will ease the burden and help you to concentrate on your passion knowing that the mechanics of setting up the business are in place and you have a solid platform to work from.
Select the Right Business Structure
Choosing the appropriate business structure for your situation is vital. There are three basic legal structures for businesses:
- A sole proprietorship – you alone own the business and are 100% responsible for its debts and liabilities. All earnings are taxed as personal income. It is the most simple structure with minimal registration requirements. However, creditors can claim against your personal assets including your house and car.
- Partnership – Two or more owners agree to share profits and losses according to their share in the firm. In a general partnership, all partners are liable for the debts of the firm. Each partner’s share of the profits is taxed as personal income. Creditors can also claim on your personal assets.
- Corporation – The company is a separate legal entity and pays corporate tax on its revenue. This is separate from the owners personal tax. While a corporation is considered a more complicated legal structure, the overriding advantage is that the liability of the owners is restricted to the amount invested in the company (unlike the other two structures).
It is important to seek professional advice on the best business structure for you in order to save time, money (and tax!) and get the business off to the best possible start.
Most businesses will require some form of registration with federal, provincial, territorial and sometimes municipal agencies. It is important that you are aware of these requirements otherwise you could inadvertently fall foul of these important steps and risk a fine.
A key registration is with the Canada Revenue Agency (CRA) for your business number. This number is used in respect of your registration for corporate income tax, GST/HST registration, payroll deductions and import/export income (as required for your business). If you take on employees you will be required to deduct Canada Pension Plan (CPP) and Employment Insurance (EI) from your employees’ remuneration. Depending on the type of business you operate you may also be required to obtain certain business licences and permits. For example if you are in business as an electrician you will need to be certified by the Electrical Safety Authority as an Authorized Contractor. Your business premises may also be subject to zoning or land use by-laws that you will need to be aware of. Knowing what to register for and when is essential to avoid contravening federal, provincial or municipal regulations.
Your business plan should include cash flow projections and estimated financial statements. This will give you a good idea of how much you need to capitalize the business. The next step is obtaining that financing. There are many sources of potential finance including personal savings, equity in your property, angel investors and grants. Bank financing is one of the most established forms of financing a business, however you need to provide security for the loan and be considered a good credit risk (a well thought out business plan will go a long way to convincing the lender that you have a viable business). Once the business is capitalized, good financial management is integral to success.
It is also important that you have effective accounting systems so that you know if your business is making profit, and also to ensure that you have enough cash to pay bills as they fall due. Many profitable businesses have failed due to poor cash management.
Legal Compliance and Keeping the Corporation in Good Standing
Once the business is operational, there are certain key issues to be aware of. As an example, if you incorporate your business, you will need to ensure that the company keeps adequate statutory records, makes the appropriate statutory filings (such as an annual return of directors and officers) in a timely fashion, and carries out the required meetings (such as an annual meeting of shareholders within six months of the end of the financial year). Any changes to the corporate structure (such as a change to the directors) also require filing.
There are also a number of other obligations such as producing financial statements and filing a corporate tax return within six months of the financial year end, and paying taxes quarterly. It is important to have a calendar so that key dates are noted and forward planning is essential.
However, legal compliance is an ongoing process. As a business, you will be subject to laws and regulations concerning the conduct of your business that include environmental, health and safety, privacy, social media, licensing issues etc. Depending on your business, you will be impacted by these to a greater or lesser extent. Specialist professional advice is essential to help you stay abreast of these issues.
Developing the Business (Networking)
One of the biggest challenges for new business owners is how to find clients. There is no magic formula for this. Today’s technological society demands a web and social media platform, but there is no substitute to ‘getting out there’ and networking. It is important to position yourself in places where your potential clients might be.
Building relationships with business associates who can refer you to potential sources of work is key to growing your business. Getting known in business circles by attending meetings and networking groups will help to build your brand and credibility.
When meeting potential clients and associates be clear on your elevator pitch. You should be able to explain your value proposition, ie what you do and why you are unique in thirty seconds or less. Practise it and own it. Look for opportunities to write articles or give speeches so that you can build credibility as an acknowledged expert in your field. Sowing these seeds require patience but will be well rewarded.
Issues to Consider When Taking on Employees
A business cannot grow without taking on employees. If you recruit employees, you need to be aware of the raft of legislation and regulation surrounding the employment relationship. This covers CRA registration and payroll requirements, Workers Safety Insurance Board (WSIB), Employers Health Tax, employment standards relating to pay, vacation, working conditions, health and safety, termination of employment and much more.
Considering employee issues starts from the moment you consider taking on employees. Even the recruitment and selection process is heavily regulated. Whether you have 1, one hundred or one thousand employees, a deep understanding of this maze is essential and another instance where your business support network is invaluable.
Expanding the Business from Start up to Growth
If you have successfully launched your business and it is running profitably, the next step is to look for opportunities to take the business to the next level. Now is the time to look for new opportunities for growth, either geographically or through the services/products offered.
Continue to use your professional advisory team as a sounding board, and keep learning, not just about the field you specialize in but also on all aspects of running the business. For example, as you take on employees, leadership and motivating employees will be critical skills to learn. It is also an opportunity to delegate and achieve a better work life balance.
Starting a business is a journey of evolution. It is not a linear process however. You will inevitably face failures and disappointments, but you will also likely encounter unexpected opportunities to steer your business in a new direction.
Building a business is like raising a family. It can be frustrating and full of challenges, but there will undoubtedly be triumphs and rewards that make it all worthwhile. Following your dream and passion takes effort, courage and tenacity but can be the most exciting and rewarding step you ever take in life.
Article authored exclusively for TriDelta Financial by Paul Dubal, Director of PD Corporate Services. He will gladly assist you in getting your business properly set up including registration & structure for your business, see www.pdcorporateservices.ca