Starting a Business in Canada

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No nonsense information on small business.

May 2, 2011 - 2 minute read - Comments - legal

Sole Proprietorship

There are basically three legal forms of business ownership; sole proprietorship, partnership, and corporation. In a sole proprietorship, you own the business and its assets directly. All business income would be reported and declared on your personal tax return. Because you are inseparable from your business, you have full liability for the obligations of your business. A lender could make a claim against your personal assets for business debts. There are a number advantages and disadvantages to this form of ownership: Advantages

  • Simplicity. You can get started after registering your business name and obtaining a business license.
  • Taxes. If you are running a business part-time while working full-time, you can write off any business losses against your employment income.
  • Decision making. Because you are the business, you make all the decisions and you can make them quickly.


  • Liability. Default on business debts or lose a lawsuit and your personal assets like your house or car could be in jeopardy.
  • Taxes. If you are working a full time job while operating your business on the side, any profits will be added on top of your employment income and taxed at your full marginal rate. This leaves you with less money to invest back into the business.
  • Confusion. Sole proprietors often have trouble keeping their personal finances separated from their business finances. This makes it more difficult to tell how a business is performing. It also makes bookkeeping and accounting more difficult. Sole proprietors should always maintain separate personal and business bank accounts in an effort to avoid this.

There is no one right form of business ownership. It is dependant on your personal situation. You should talk to your accountant and lawyer before making a decision. Their fees will be a small price to pay to ensure that you have the legal form of ownership that’s right for you.

Apr 29, 2011 - 4 minute read - Comments - business planning

Know Your Financial Statements - Part One: The Balance Sheet

Many small business owners know next to nothing about their financial statements. So what? Why is that a problem? Financial statements can tell you a lot about your business. To the right reader, they communicate the health, strengths and weaknesses of the business. They also go a long way in determining the value of the firm. Whether you are selling, buying, financing or operating a business, learning the language of financial statements is a must for any good manager.

A look at your financial statements can shed light on the health of your business.

This blog post will give the basics of the balance sheet. The balance sheet is a snapshot of the business. It shows:

  • The size of the business
  • The financial structure of the business
  • The short-term health of the business
  • A partial look at the riskiness of investing in the business

These are all useful things to know. The first side of the balance sheet includes a listing of assets. Essentially, an asset is anything that the company owns that could be sold for cash. There are two types of assets: Current and Fixed.

Current Assets These include anything that is expected to be turned into cash within the year. Things typically listed are:

  • Cash - Your bank balance.
  • Accounts Receivable - Outstanding invoices owed to you by your customers.
  • Inventory - Anything that you have bought or made and have not yet sold.

These assets are listed in their preference. Cash is king because you have it. Accounts receivable are next because the product is sold and delivered. Inventory is the least desirable because it isn’t sold yet and can get stolen, go obsolete or get ruined.

Fixed Assets The other type of asset is fixed. They include your land, buildings, equipment and other things that are needed to produce sales, but are harder to turn into cash in a hurry. You will often see a line titled “Less Depreciated Assets” right under your capital equipment. This is due to our system of accrual accounting. It assumes that each year, a portion of your infrastructure gets used up. This is meant to spread the cost of the fixed assets over several years. On the other side of the balance sheet are two categories: Liabilities and Equity. Liabilities, like assets are classified as current or long term.

Current Liabilities These include anything expected to be paid within the next year. They include

  • Accounts Payable - What you owe your suppliers.
  • Short Term Debt - Debt that is intended to be repaid in a short period. Lines of credit balances show up here.
  • Current Maturities of Long Term Debt - The principal payments due in the upcoming year.

One important measure to note here is the current ratio. This is the ratio of current assets to current liabilities. The ratio should be higher than 1, meaning that the business could raise enough cash quickly to settle the current accounts if need be. If this is below 1, you could have trouble meeting your payments.

Long Term Liabilities This usually includes the portions of debt that won’t be paid in the next year.

Equity When you subtract the liabilities from the assets, the remainder is equity. This has two components. The first is paid-in equity. This is the investment made by the owner(s) of the company. The second is retained earnings. Retained earnings are the accumulated net profits of the company minus any dividend payments made to the owners. A good way to check the riskiness of your business is to compare your debt to equity ratio. The higher the ratio, the riskier the business. This is due to the fact that bank will get paid their interest and principal, regardless of how well the business performs. When times are good, the owners do extremely well, because they keep everything beyond their debt obligations. But, if the business does poorly, the owners get hit harder because the bank will get their money, one way or another. This concept is called financial leverage. So there are some of the basics of the balance sheet. Next week we’ll cover the income statement and the cash flow statement. Have a great weekend!

Apr 28, 2011 - 3 minute read - Comments - websites

Google Offers Free Websites To Canadian Businesses

Google has teamed up with a number of sponsors, including the Royal Bank, to offer a free website to any Canadian business. In the video below, Kevin O’Leary introduces the program.

A domain name is the “www” address you are familiar with; ie. The Get Your Business Online (GYBO) program includes a .ca domain free for the first year. This is approximately a $10 value. You will own your domain and you are free to transfer it to another service if you want after 60 days. Basically, you are not locked into anything.

Websites are stored on computers called servers that are connected to the internet. This is referred to as “hosting”. Every website must have a host. The typical cost for hosting a basic website is $7-$10/month. Under the GYBO program, a company called Yola, is offering free hosting.

Yola also provides a templates that you can uses to build your website. I haven’t used the templates but from the material I’ve read, it seems like they would be very easy to use. If you can use Microsoft Word, you can use these templates. There is no programming required. There are only 6 steps to get your website up and running under the GYBO program:

  1. Select your .ca web address
  2. Select your category - This is to match your business with templates that are most appropriate for your needs.
  3. Create content - This is the information that will be on your website
  4. Choose a style - This is where you pick the template you like best.
  5. Customize your site - This is where you would change colours, add photographs, etc.
  6. Publish your website to the internet - This just takes the click of a single button.

If you are wondering “What’s in it for Google?”, they are hoping to get more businesses on line because it will lead to more people using Google to search for them. Google can sell more ads based on the increased search traffic. Yola is hoping that you’ll upgrade and use some of their paid services. The GYBO program is a marketing effort for these companies.

Having said that, if you do not have a website for your business you’d have to be crazy not to take advantage of this offer. You’d be hard pressed to find a simpler way to get your website online. The websites I’ve seen that have been built with these templates vary in quality but that is due more to the taste of the business owner than any deficiency in the templates.

It’s 2011. If you don’t at least have a website to tell people what you sell, where your business is and what your hours of operation are, you don’t exist. I haven’t used the yellow pages in at least a year. If you are not online, I won’t know about you and neither will many other people. This is a great opportunity. Take advantage of it.

Apr 27, 2011 - 3 minute read - Comments - business planning

Business Plan Templates, Samples & Outlines

Many people’s first instinct when starting the business planning process is to find a template, outline or sample plan that they can copy to create their own business plan. A quick Google search will show that there are thousands of these templates on the internet. Like anything on the internet, there is a large variation in the quality of these plans. So how do you know which one to use as a guide? With the large volume of templates out there, it is obviously impossible for me to review them all but here are some guidelines you can follow to make sure that you wind up with a better plan in the end.

  1. If you’ve chosen to use a template, you will need to learn about functional business areas like marketing and finance. You will need to write intelligent, educated content in each section of the plan and this is impossible without an understanding of each functional area. This is actually the biggest benefit of using a template and writing the plan yourself. It will get you to learn and think about all areas of your business, which will leave you better prepared once you actually begin operations.

  2. Don’t follow the template exactly as it is written. Whoever created the template did so for his or her business, not yours. Use the template to see what types of things should be included in your business plan but there will be sections that you should add or delete to suit your circumstances.

  3. Look at a sample plan for the outline only and ignore the content. The content may not apply to your business. It may be poorly written. If you blindly copy this text into your own plan it might not make sense in the context of your business and your banker will think that you don’t know what you are doing.

  4. Most business plan templates are Word documents, which don’t include pro forma financial statements. There are Excel spreadsheet financial models available on the internet but my comments about quality and appropriateness apply to these as well. One particular thing to pay attention to is the country the spreadsheet was designed for. Accounting is treated a bit differently from country to country so I wouldn’t use U.S. pro forma statements for a Canadian business plan, for example. Excel sheets will be more difficult to modify to your own particular situation but again, you will learn a lot things that will be useful later on.

The bottom line is that a business plan template can be useful in guiding you through the planning process but it is no substitute for understanding business concepts. You will need to know what you are doing if you are going to have a successful outcome. If you want to have a look at one, download this free general business plan template.

Apr 26, 2011 - 2 minute read - Comments - business model

Evaluate Your Business Idea

People come up with ideas for new businesses every day. How does one judge whether an idea has merit or not? Should the business be pursued or should the idea be tossed on the scrap heap of bad ideas? Here is a process you can follow to find out.

A feasibility study is used to test a business concept. It takes into account the strengths, weakness, opportunities and threats (SWOT) of the proposed business’s environment and the resources it has at hand to try to evaluate the business’s chances of success.

The first step is to come up with a hypothetical business model that you can test based on the research and analysis you conduct in the feasibility study. I recommend following the Business Model Generation method.

Next, you would conduct research designed to inform the analysis needed to test the assumptions you made in the business model. This may involve talking to potential customers, gathering information on your market and competitors, and getting quotes on all costs involved, among other things.

Once you have information in hand, you can start your analysis. In general, for a feasibility study, I would conduct the following analysis:

Environmental Analysis

  • trend analysis
  • industry analysis
  • internal analysis (an assessment of your skills vs what the business requires)
  • market profile analysis

Financial Analysis

  • analysis of similar firms in the industry
  • projected market share
  • break even analysis
  • proforma analysis
  • ROI projections
  • margins

If you complete the analysis described above, you should be in a good position to make a decision about whether or not to proceed.

If you decide to proceed, you would then create a business plan to describe the day to day operations of your business. Much of the analysis done in the feasibility study stage will be brought into the business plan so it should be relatively easy to create.

A feasibility study is a lot of work and it is difficult to do well, but it is a step than should not be skipped for a business with a new business model. The risks are just too high. It’s better to find out that a business doesn’t work in the feasibility study stage rather than after you’ve invested your hard earned money. While “No, don’t do this” might not be what you want to hear, consider it a set back. There are plenty more ideas in the world. Take what you’ve learned, pick another idea, and take another shot at it.

Apr 25, 2011 - 2 minute read - Comments - business model

What Is A Business Model?

The book, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, written by Alexander Osterwalder and & Yves Pigneur defines the term business model as:

A business model describes the rationale of how an organization, creates, delivers, and captures value.

This is a very good definition, however I think it is important to understand the difference between a business model and a business plan.

A business organizes its assets and activities into a system that it uses to deliver value to the customer. This system may vary widely from business to business depending on the industry it is in and the approach it is taking. For example, a restaurant has a different business model that a tire shop. This is easy to see. Amazon has a different business model than your local retail seller of books. This might be more difficult to see as they both sell books.

To help explain this difference, I’ve included a graphic from the above mentioned book that nicely organizes a business model into separate areas.

Business Model Canvas

When you look at categories like cost structure, channels, and key activities it becomes clearer how Amazon is different than your local bricks and mortar retail book seller.

Note that the business model gives a thumbnail sketch of how the business will be organized and what it will be doing. It does not provide a plan for how this system will work or how it will be implemented. That’s where the business plan comes in.

What does all this mean for you, the person wanting to start a small business? If you are starting with a business model that has been existence for while and other people are successfully running businesses using it, you can proceed to the business planning stage. If you are starting a business with a business model that is significantly different that what has been tried before or if a particular business model has a short rack record, you should spend time developing your business model. This will often involve conducting a feasibility study to test your business concept.

For 80%-90% of you out there who are looking to start small businesses, a proven business model exists for what you are doing and you can proceed to the business planning stage. The rest of you have a longer road to travel. For more information on business models, check out the Business Model Generation website.