Practice Smart Business

Growing your own business is the hardest work you’ll ever love. The rewards can be great, but so can the risks. Before you set up shop, consider some smart financial practices to help avoid trouble and increase your chances of success.

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“Before you jump in, think carefully about how your business should be structured,” advises Chartered Accountant Ravpreet (Rav) S. Grover. As a partner in Lemoine Hyland LLP in Mississauga, Rav specializes in entrepreneurs and teaches courses on business essentials. “If there are risks of legal liabilities with what you’re doing, incorporate the business before you start.” He recommends consulting a lawyer and paying the fees to ensure it’s done properly. “Lawyers can help you assess your risks, and their experience makes them an invaluable resource,” says Ron Martindale Jr., CA∙CBV, a partner in London’s Davis Martindale LLP. “Together with your accountant, the lawyer will create a legal structure that can help protect your assets from business risk. In particular, a holding company can be used along with an operating company to protect your personal assets if you’re sued. After-tax business profits from the operating company can be paid to the holding company as a tax-free dividend, and then loaned back to the operating subsidiary, perhaps on a secured basis.” Ron also advises his clients to build a circle of good professional advisors. “Include your lawyer, banker, financial planner, and of course, your Chartered Accountant (CA). A CA works with your lawyer to protect your assets, and may be able to structure things so you can split income with family members who work in the business,” he explains. Owners of successful businesses do “right things right”. “You can’t monitor what you can’t – or don’t – measure,” says Rav. “Set targets and track your performance each month. Pay close attention to the adequacy of your gross profit; your margins by product line; when payments are due; and your cash flow.” “Smart business owners have the discipline to save money and build equity,” Ron adds. “Don’t be trapped into spending everything you make. You don’t know when business may dry up or you’ll want to take a month off. Life is easier when decisions are proactive rather than reactive. “Stretch your money and make it work for you,” he continues. “Finance long-term assets with long-term debt. Don’t use your line of credit to buy machinery if the bank will give you a five-year term loan for it. If you exhaust your line of credit, you’ll have nothing left for inventory that flips two or three times a year, or for emergencies and contingencies.” “Get a Chartered Accountant from day one,” Rav tells budding entrepreneurs. “Many specialize in areas like retail or construction. They know the industry and can help you safeguard your business and income.” Smart business owners know that they can’t be good at everything, and they don’t try to do it all themselves. If only for the peace-of-mind factor, get professional advice for your business. It’s worth far more than you’ll ever pay in fees.