Starting a Business in Canada

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No nonsense information on small business.

Jun 3, 2011 - 3 minute read - Comments - banking

Types Of Business Bank Accounts

Business accounts basically come in three flavours; operating accounts, savings accounts and U.S. dollar accounts. There are many variations of these three types as banks and credit unions add features to try to gain competitive advantage but ultimately beneath the window dressing, it’s just these three basic accounts.

Operating accounts are for the day to day activities of the businesses. Business owners can write cheques on these accounts or use a debit card to make purchases, much like a personal bank account. Business accounts are quite different though when it comes to fees charged to the account holder.

These accounts will have often have a flat month fee plus fees for each transaction. Business accounts are charged for deposits based on the content of the deposit. For example, one bank is charging $1.80 for every $1,000 in paper cash deposited and $1.80 for every $100 in coins deposited. There is also an approximately $0.16 fee for each cheque contained in a deposit. Cheques & deposit books are more expensive than those for personal accounts. Night deposit will cost extra as will the disposable plastic bags for the drop. Some institutions may offer a bundled price monthly price for a certain level of transactions.

Business savings accounts generally don’t have chequing privileges but most institutions allow a couple of free transfers to an operating account each month. The rate of interest paid on these accounts is usually tiered so that larger balances earn more interest. For example, it might take a $100,000 balance to earn 1%. As a rule, these accounts aren’t worthwhile and surplus cash should be used to buy short term investments instead.

Foreign currency accounts are available from most institutions. The most common is the U.S. dollar account because of the large number of Canadian companies that export down south. These accounts work much like operating accounts but the fee structure might be slightly higher. Financial institutions will take a commission whenever one currency is changed to another. This means that the exchange rate you see on the news won’t be the rate you will be getting at the bank. The commission varies according to the amount of money being exchanged. A transfer between an U.S. dollar account and an normal operating account will trigger these commissions. If you are consistently exchanging large amounts of money from one currency to another, it’s probably worth a conversation with your bank to see if setting up a specialized foreign exchange trading account makes sense for you.

With all of the options available, business accounts can be confusing but it you remember these basic account types it will be easier to choose the one that is right for you and your business.

Jun 1, 2011 - 3 minute read - Comments - business planning

Are Business Plans Useful?

So what’s the deal with business plans? Are they actually useful or are they just formal documents needed to satisfy loan or investor requirements?

I’ll start of by saying that a business plan does not guarantee you success. I’ll go even further by saying that if you don’t write a business plan your business can still succeed. Okay, so why invest so much time and effort into writing a comprehensive business plan? Well,  simply put, chances are that you’re better prepared with a professionally written business plan than without one. Here’s an analogy that might put things in perspective. A trainer cannot guarantee an Olympic athlete a gold medal. An athlete can even win gold without the help of a professional trainer. But, I think its fair to say that an athlete’s probability of succeeding are higher with a professional trainer than without one. Why? Chances are that the athlete is better prepared with the help of a trainer.

So what does a business plan entail?  What is it actually supposed to do? Well, for starters, a good business plan should serve as a blueprint for every aspect of your business. It should guide you with your business and help you establish targets, goals and objectives that otherwise might not be thought out carefully. Business plans reduce the time spent making decisions. What are your monthly cash-flow requirements? What price mark-up is needed to earn a sufficient profit?  What will you do if your competitors lower prices? These are the types of things you need to be prepared for so you can knowledgably make decisions for your business. Business plans should help improve communication between all members of the business by creating a common sense of purpose for the people involved. It should get you thinking about strategy and how you can succeed when others don’t.

The majority of businesses fail in its first 5 years so starting a business isn’t easy. But knowing this, why wouldn’t you take the time and effort to write a comprehensive business plan to better prepare yourself? Why just “wing it” when a business plan can help guide you in the right direction and prepare you to face business obstacles.

And to those who still maintain that business plans are useless; you need to understand this. Most successful entrepreneurs go through a process in which they uncover key questions about their business. So whether or not they actually write-out a formal business plan, these entrepreneurs essentially go through a thought process that prepares them the same as a business plan would. The difference is that most people don’t have the experience or knowledge to do this on their own, so a business plan can be an important document to help guide them in the right direction.

Planning and preparing can be helpful for almost anything you do in life.  Whether you’re training for a sports event, studying for an exam, or managing a company project,  you have a higher chance of succeeding and reaching your goals if you have a strategic plan of attack. A business is a major investment, so be smart and write that business plan. It might be the best business decision you ever make.

May 31, 2011 - 1 minute read - Comments - business news

Bank of Canada Holds Interest Rate

At its meeting today, the Bank of Canada decided to leave interest rates unchanged. While the Canadian economy remains strong with annualized growth of 3.9% in the first quarter, a strong dollar has kept inflation in check. The Bank has indicated that it will start raising rates as the recovery continues. Experts predict that we could start to see rate increases this fall.

May 30, 2011 - 3 minute read - Comments - banking

Opening A Business Bank Account

Business transactions should always be kept separate from your personal transactions. For this reason, every business owner should have a separate bank account for the business. Banks have business bank account products that are different than personal chequing accounts. Running your business out of a separate personal chequing account may violate the terms of service with your bank. I recommend that you open a business bank account from the beginning to avoid the hassle of switching accounts later as your business grows.

It’s best to make an appointment to open a business account. It can be a bit of a lengthy process so you want to make sure that you can set aside an hour of your time. If you are operating your business as a sole proprietor or a partnership, you will need to have documentation showing that you have registered the name that your business is operating under. The process for registering your business’s name varies from province to province so you’ll have to check with your provincial government. If you have a partnership agreement, you should bring a copy of it. If your business is incorporated, you’ll have to bring along your certificate and articles of incorporation. If you have a stamp with your corporate seal, you should bring a copy of that as well.

You will have to make a decision about signing cheques. As a control mechanism, some businesses choose to have all cheques signed by two people. This can add a layer of security but it will also be less convenient and it will limit the scope of what you can do with the bank’s online banking services. An account that requires two signatures will not be able to pay bills online because there is no way to verify that two signatories consent to the transaction. It will be impossible to issue debt cards for purchases for the same reason. I’ve seen many businesses where two partners decide to have cheques require two signatures only to have one partner pre-sign a bunch of blank cheques so the partner can pay bills. This effectively negates the safeguard that was originally intended. Think carefully about requiring two signatures and make sure you are doing it for the right reasons because the hassle involved is considerable. Everyone who will sign cheques on the account, either alone or as part of a dual signature system, should come with you to the appointment as the bank will want samples of their signatures on file.

Opening a business bank is a relatively straightforward process but you can save yourself a lot of time and hassle if you decide how you want the account set up beforehand and bring all the necessary paperwork and people to the appointment.

May 26, 2011 - 2 minute read - Comments - government

What Is A Business Account Number?

A Business Account Number is used by the Canadian government to track a number of activities related to your business. Think of it like a social insurance number for your business. If you incorporate a new business at the federal level, you will automatically be issued a business number. The business number is the basis for a number of the accounts that the Canada Revenue Agency keeps track of. These take the following format.

Business Number 123456789
GST/HST account 123456789 RT 00019
1st payroll account 123456789 RP 0001
2nd payroll account 123456789 RP 0002

You can register for a Business Number online but before you do, it will be helpful to have this information at hand.

  • Social insurance number (SIN)
  • Business structure
  • Name
  • Location
  • Business activity
  • Contact person
  • Sales amount / reporting period
  • Fiscal year-end

You will require a business number to register for GST/HST number if you:

  • Have revenues exceed $30,000 in a single calendar quarter or in four consecutive calendar quarters
  • You are a non-resident and make make taxable sales of admissions in Canada for a place of amusement, a seminar, an activity, or an event held in Canada, even if your sales do not exceed $30,000
  • you host a convention in Canada, and more than 25% of the delegates are residents of Canada
  • you solicit orders for publications to be delivered to customers by mail or courier in Canada
  • You operate a taxi/limousine service and your fares are regulated by federal or provincial laws, regardless of your annual revenues.

For most of the readers of this blog, the first point is the one to pay attention to. This works out to $120,000 annually on a gross revenue basis, which isn’t very much in today’s world. The bottom line is that most businesses will need to registered for GST/HST. If you are unsure if you meet the requirements, the government has a website that has a questionnaire that will let you know whether you need a GST/HST account. Setting this up is more straightforward than it looks but knowing if your product is taxable under the GST/HST might be difficult to determine. It’s a good to know about how your business interacts with the government but if you are ever in doubt, it is best to talk to your accountant.

May 25, 2011 - 2 minute read - Comments - business news

The Challenge Contest Offers A $100,000 Canadian Business Grant

Telus and the Globe & Mail are running a contest called The Challenge. Small and medium sized Canadian businesses can enter the contest by filling out a short one page form on the Globe & Mail’s website. The contest asks that you describe your business challenge, how $100,000 will help you overcome it, and what results you think you will achieve once you overcome your challenge. The winner will be chosen by a panel of expert judges. The winner will get a $100,000 business grant from Telus and the business will be profiled in Report on Business. The prize will paid in two parts, with the second $50,000 being paid after a report is given on how the first $50,000 was spent. The money must be spent as described in the contest application. The judging criteria is as follows:

  • 20% for the description of the challenge
  • 60% for the proposed solution
  • 20% for the anticipated results.

The contest entry form is limited to 200 words for each criteria so the application process couldn’t be simpler. The contest is open to Canadian businesses outside Quebec that have less than 150 employees. Entries are limited to one per business. Given the large number of eligible applicants and the amount of prize money involved, competition will be stiff. I recommend that you work on crafting a compelling narrative before entering the contest. The contest closes on July 6, 2011.