People start their own small businesses for all kinds of reasons: Pursuing their passion, a desire for autonomy or because they have been laid off. But leaving a traditional job to become an entrepreneur is a life-changing decision requiring careful consideration. Here are some tips from Chartered Accountant Bill Nicholls, Principal of CRO Solutions in Toronto.
Assess your tolerance for risk – “Starting your own business is a huge commitment and it turns your life upside down,” Nicholls says. “Take a good look at yourself. If you don’t like change or are an orderly person, be careful, because business startups are messy. You own all the problems and you don’t leave them behind at 5 p.m. every day.”
Decide what kind of business you want – “Do you want to buy a business, such as a franchise or distributor arrangement, or start from scratch?” asks Nicholls. “If you are looking for something already established, you will pay for that and you will also need a good advisor to look behind the numbers that the seller or franchisor has provided. You need to check what the anticipated returns are, what the numbers are based on, and how many similar startups have achieved those results.”
Consider a home-based business – “If you have a passion for something and want to start from scratch, that’s when to consider a home-based business,” advises Nicholls. “It may even be something you can launch while still working at your current job.” Starting a home-based business can help you preserve your capital and avoid overheads, such as rent. You can also deduct some home office expenses when you file your taxes. But not all types of businesses suit a home setting. “It depends on the nature of the business,” says Nicholls. “What message are you sending if your business requires you to conduct meetings and they are taking place at your kitchen table?”
Decide on your business structure – “If you are starting small, register your business with the province and be a sole proprietor,” advises Nicholls. “But if you buy a franchise, or your business grows, you will need to incorporate because of the limited liability protection offered through a corporate structure.” Professionals, as another group, do not enjoy all of the same liability protection benefits and may need to look at an alternative structure. If you do incorporate, be sure to consult a Chartered Accountant and lawyer about the type of share structure to adopt.
Write a business plan – “Every business needs a business plan,” says Nicholls. “It can be as basic as putting down what needs to be done and when, what challenges lie ahead and what funding is required. As you look past the first year, it should include benchmarks, goals and your strategy to achieve them.”
Set up your financial system – “Keep it as simple as possible and work with an advisor you are very comfortable with,” suggests Nicholls. “You want to feel free to ask dumb questions and you don’t want any barriers to communication.”
Set aside money to pay your taxes – “Always pay but never overpay your taxes,” says Nicholls. “Check whether your sales meet the threshold that requires you to register and collect the Harmonized Sales Tax (HST). In terms of income tax, even though you may not have to pay your taxes for several months, put the money aside because it’s not a tax holiday, it’s a deferral.”
Assemble your team – “Build a team of advisors and professionals and use them as you need them,” says Nicholls. “Build a relationship with your bank over time by talking to them about your business and their services.” A Chartered Accountant who has expertise in business startups will also be an invaluable member of your team. “Your CA has contacts in the community, knows the local banks and will look after your interests,” says Nicholls. “As you grow, your CA will be with you every step of the way, and can help take you from startup to your first million dollars.”
Brought to you by the Institute of Chartered Accountants of Ontario
