Starting A Small Business
Starting a small business is an exciting endeavour – but also one that requires a lot of research and decision-making. To help make the process a little easier, here’s an overview of the most important things to consider when setting up a business, and tips to set your new venture up for success.
1. A solid business plan
- Research the current market to identify potential growth areas
- Include a budget for your start-up costs, operating funds and expected revenues
In general, there are three types of legal business structures: If you forecast that your business will doing well financially in the early going, you may want to incorporate (form a corporation) as there are tax advantages to doing so.
A strategic and professional approach to bookkeeping and organizing your records is essential. Most importantly: don’t make the (common) mistake of confusing business and personal, as it makes for a messy set of records to sort through at the end of a year.
To ensure clear business records:
- Use a business bank account for all deposits and expenses
- Set up a business credit card (or designate a personal credit card for exclusive business use)
- Keep all of your receipts, bank statements, bills, and credit card statements
- If you have cash expenses, track them (an Excel document works well) and their expense category
Use a bookkeeping system that captures all business activities and prepares sales invoices for you there is no point of doing this manually when you have the software!).
Many financial institutions offer business start-up and equipment loans which can be used to finance the first few months or year of your business. Most start-up professional loans are up to approximately $50k, with equipment loans of up to $150k are readily obtainable.
5. Location, location, location
For the majority of small businesses, selecting the right location from which to operate is crucial. Tax and business issues are important to consider when making this decision – for example, there are different regulations and tax implications for home-based businesses.
6. Registering your business
Every business requires a business number in order to deal with the Canadian government in regards to:
- HST (harmonized sales tax). If your business earns over $30,000 in revenue, and does not fall under the non-exempt or zero rated industries then you must register for an HST account.
You can register for your Business number online athttp://www.cra-arc.gc.ca/tx/bsnss/tpcs/bn-ne/bro-ide/menu-eng.html.
7. Hiring Employees
It’s important to understand your obligations if you plan on hiring employees. Some important things to factor in, and educate yourself on:
- Remitting payroll taxes (source deductions) such as EI, CPP, and EHT
- Employment standards and managing staff
- WSIB, which may be applicable to your industry
- T5018 Reporting for subcontractors, if applicable to your industry
- EHT (Employer Health Tax)
- T4/T4A Reporting annually
- Potential severance pay, notice period and ROE (Record of Employment) forms which must be completed upon termination of employment
While you should do your research on the items above and plan carefully on your own, it’s also important to consult with a professional to ensure you are on the right track with respect to reporting, taxes and structure for your particular business and sector. We’d be happy to meet with you at any time to discuss your plans.
Businesses structure pros and cons
- Inexpensive and simple to form
- Tax advantages if the business is performing poorly
- Owner solely controls the business and receives all the profit
- Unlimited Liability
- Difficult to raise capital
- Income is taxable at your personal tax rate (highest personal rate of up to 46%)
- Limited Liability (The owner and the corporation are separate legal entities)
- You can transfer ownership
- Easier to raise capital
- Tax advantages such as income splitting, tax deferral, small business deduction, and capital gains exemption on sale of business.
- Professional corporations for qualifying professionals (i.e. doctors, lawyers, dentists, etc. (see your accountant for more information)
- Annual filings are required and financial statements
- More costly to set up a corporation
- Corporations are highly regulated
- Early losses are “trapped” in the corporation (i.e. they cannot reduce personal taxes)