Starting a Business in Canada

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Aug 4, 2011 - 1 minute read - business news

2011 eBay Entrepreneur of the Year Awards

For all you eBayers out there, the 2011 eBay Entrepreneur of the Year Awards have launched. The contest is open to any adult resident in Canada. A contest entrant must

  1. Sell $1,000 per month through eBay
  2. List at list 10 items per month.
  3. Have a feedback rating of 98% or better.

The entry process is fairly straightforward. Go to the entry form and provide your information. There is a requirement for a short (500 word maximum) essay. There are three categories in the competition:

  1. Entrepreneur of the Year
  2. Service-preneur of the Year
  3. Newcomer of the Year

The Entrepreneur of the Year will win $3,000, the Service-preneur of the Year will win $2,000 and the Newcomer of the Year will win $2,000.

Entries have to be in by 11:59 PM ET August 19, 2011. If you have a business based on eBay and meet the above criteria, this could be an opportunity for you.

Aug 3, 2011 - 3 minute read - business planning

The Buy A Job Small Business

There is a difference between having a job and owning a business. Unfortunately, when many people start or buy a business they don’t make the proper distinction.

Let’s use an example. Bob has a job where he earns $50,000 a year. He wants to be his own boss so he buys one of the smaller fast food franchises where he takes home $50,000 in profits every year. He is his own boss and he makes the same income as before. Sounds good right? Not so fast.

To have a business where he earns that same $50,000 he had to:

  • Pay a franchise fee of approximately $25,000
  • Pay $150,000 for equipment and leasehold improvements
  • Pay $20,000 for inventory and working capital

You might be thinking that this isn’t a big issue. He financed the equipment and leaseholds under the CSBFP so it costs him $60K out of pocket. He had money saved up and it’s an investment.

The problem is that the return on his investment is nothing. He works 50 hours a week and earns his $50K through his labour alone. The money he has invested is earning nothing because the business doesn’t provide a return beyond his salary. Even though he works 50 hours a week, he is constantly on call because he is the business owner. If some employee doesn’t show up for a shift, he has to jump in to fill the gap. He is working harder, longer hours than when he had a normal job.

Bob has increased his risk considerably. He is now responsible for a six figure bank loan that must be paid every month. His revenue isn’t guaranteed. It varies with the economy, the intensity of competition, and other factors largely out of his control. Because he is not earning a return over and above his wage, he is getting paid nothing for taking these risks. Bob should be compensated for making an investment. He should be making a return beyond his salary in line with the money he has invested and the risk he is taking.

My point isn’t to try to talk you out of starting or purchasing a business. It’s to make sure that you do your homework and plan appropriately. When you write your business plan, you should be calculating return on investment (ROI) to make sure that you are projecting a return that is in line with the risk you are taking. If you do your projections and you are just able to take a salary out of the business, you are better off keeping your job and finding a more lucrative business opportunity.

Aug 2, 2011 - 1 minute read - business news

New CBC Show Searching for Canadian Businesses In Need

The producers of Dragons’ Den are looking for Canadian companies that are struggling financially. Top Canadian investors will give their time and money to help make the chosen businesses a success. To apply a company should have the following attributes:

  • Must have been in operation for at least three to five years or more
  • Gross revenue of $500,000 per year on average
  • More than 5 employees
  • Privately held business, family business, partnerships, limited partnerships
  • Must be willing to commit to being filmed on camera for up to a two-week period
  • A business registered in Canada
  • Fluent English speakers

The selected businesses can benefit from:

  • Free top-notch business consultation
  • Experts who will visit your business, no travel is necessary on your behalf
  • A chance to get an investment or a loan for your business when other sources have been exhausted

To apply email your name, company name and contact information by August 12, 2011 to

Jul 18, 2011 - 2 minute read - entrepreneurship

What Is A Small Business?

The exact description of a small business varies depending on which source you consult.

The Canadian Bankers Association defines small businesses as those having authorized credit limits of $500,000 or less, while medium-sized businesses have authorization levels of up to $1 million.

The Export Development Corporation defines small exporters as having sales of less than $1 million.

For the Canada Small Business Financing Program, Industry Canada uses a definition of $5 million in revenue or less. Industry Canada also has an employee based definition where businesses are considered small if they have less than 100 employees or less than 50 employees if it is a service based business. A business that has between 100 and 500 employees is considered medium sized. Businesses with less than 5 employees are called Micro Businesses by Industry Canada.

The term small and medium-sized enterprise (SME) is a commonly used term by many organizations. Industry Canada defines it as a business having less than 500 employes, while those with more than 500 employees are considered large businesses.

To provide a point of comparison, the U.S. Small Business Administration (SBA) defines a small business as having as much as $21 million and 1,500 employees in annual revenue, depending on the product or service being offered.

As you can see, the SBA definition of a small business is considerably larger than the Industry Canada definition. It’s important to undersand this difference because if the small business you are starting is going to sell products and services to other small businesses, a Canadian small busines with 50 employees might have very different needs than a U.S. small business with 1,500 employees.

Jul 14, 2011 - 2 minute read - banking

Comparing Small Business Overdrafts at Canada's Banks

Overdrafts for small business bank accounts are attached to a business’s account so that if a cheque takes the account below a $0 balance, the overdraft will be there to pay the cheque. These overdrafts are usually meant to cover small, short term deficits in cash flow. Due to their higher interest rates, they are not the most ideal bank product for long term borrowing needs. Businesses with larger cash flow financing needs, such as those with accounts receivable, should look at a business operating line of credit instead.

The following table compares the overdraft product at the Big 5 Canadian banks.

The Bank of Montreal and Scotiabank do not actively promote a small business overdraft product. They most likely offer an operating line of credit product to clients who have a need for a small business overdraft. This many not be price competitive and the application process will certainly be more in depth than for a simple overdraft. Make sure you get the details before going forward.

Generally speaking, the bank will make its lending decision by running a personal credit check through Equifax or Trans Union. The bank will then calculate a credit score based on this information and an automated system will recommend an appropriate overdraft limit for you. The algorithm that is used to calculate the overdraft limit is kept secret by the bank because they don’t want people attempting to game the system, but your personal credit record will factor heavily into the recommendation. Your local banker usually has little power to increase the recommended limit.

A small business overdraft might make sense if your business operates on its own cash but at times the balance on its account comes close to zero. An overdraft might save you the embarrassment of having a cheque returned NSF.

Jul 12, 2011 - 1 minute read - business news

Visa Announces Winner Of 'Canada's Longest Elevator Pitch' Contest

Anna-Maria Mountfort is the winner of the $10,000 credit to her Visa Business card for having the best elevator pitch among the five finalists who competed by giving their pitches during the 60 second elevator ride to the top of Toronto’s One King West Hotel And Residences. Anna-Maria’s business, mimiTENS, makes specialty children’s mittens right here in Canada.

Jul 11, 2011 - 4 minute read - banking funding

Understanding the Canada Small Business Financing Program (CSBFP)

The Canada Small Business Financing Program (CSBFP) is a program in which the Canadian Government provides insurance to banks and credit unions to insure small business loans. This insurance allows banks and credit unions to take more risk than they would normally be comfortable in taking.

In order to qualify for this program, your business must have less than $5 million in annual or projected revenue revenue and be located in Canada. Farms aren’t eligible under this program and should look at the Canadian Agricultural Loans Act Program (CALA) instead.

The maximum loan amount available under the CSBFP is $500,000 with a maximum of $350,000 eligible for leasehold improvements or equipment. These loan amounts are for each independent small business that someone owns. A business is considered to be independent if it receives 25% or less of its revenue from a related business and the related businesses operate out of different premises. For example, if someone owns a restaurant and a tire shop that operate out of different locations and do not pay each other revenue, each business would be eligible for up to $500,000 in financing.

Items Eligible For Financing

  • buildings and land
  • commercial vehicles
  • hotel or restaurant equipment
  • computer or telecommunications equipment and software
  • production equipment

Items ineligible For Financing

  • goodwill
  • working capital
  • inventories
  • franchise fees
  • research and development

There are additional restrictions on financing real estate. The business purchasing the real estate must occupy at least 50% of the building for its own business operations. The business must agree not to lease or sub-lease this space to another party for at least 3 years following the date the loan was taken out. The CSBFP is meant to help operating businesses. These restrictions are in place to prevent people from using this money to speculate on real estate or become a landlord.

If you’ve made purchases that qualify for the loan prior to being approved for it, you can finance them provided they have been made within 180 days prior to the approval date of the loan. What this means is that you should talk to your banker about one of these loans early in the process. If you try to go it alone and decide towards the end that you’ll need money, some of your earliest purchases will not be eligible for financing under this program if they are more than 180 days old. Existing loans cannot be refinanced as part of a CSBFP loan.

These loans come with either a fixed or floating rate. The interest rate is slightly higher than a normal small business loan due to the 1.25% annual insurance premium that must be paid by the financial institution to the Government. The interest rate will be either prime + 3.0% or the bank’s residential mortgage rate for a particular term + 3.0%. There is a registration fee of 2% of the loan amount that must be paid to the lender at the time the loan is taken out. This fee can be financed as part of the loan amount provided enough room remains to stay within the program’s loan limits.

The maximum amortization for these loans is 10 years, which can make for some pretty big monthly payments on a $500,000 loan on real estate. Under a traditional commercial mortgage, a 20 year amortization might be possible so it’s best to explore your options.

Collateral for these loans will be the assets being financed. If the loans are being borrowed in the name of a corporation, the bank has the option to take an unsecured personal guarantee from the shareholders for up to 25% of the loan amount. These guarantees can be joint and several or individual. If they are joint and several, any individual could be liable for the full 25%. If they are individual, each shareholder would only be responsible for his or her share of the 25%. In my experience, the bank will almost always take joint and several personal guarantees from all shareholders of a corporation that is borrowing under this program. If you are concerned about signing guarantees, you should contact your lawyer for advice.

The CSBFP can be a very good program, especially for new businesses. It gives the lender a degree of comfort so that it will take more risk that it is normally willing to. However, the fundamentals of the business or your business plan will have to be sound. There will have to be evidence that there will be sufficient cash flow to make the payments and the the business has a reasonable chance of being successful. If a lender takes a wild risk and finances a business that doesn’t merit financing, its insurance claim could be denied if the business fails.

For more information, see the Canada Small Business Financing Program (CSBFP) website.

Jul 8, 2011 - 1 minute read - business news

SavvyMom Is Looking For Canada's Top Mom Entrepreneur

SavvyMom is teaming up with Paypal to sponsor the SavvyMom Mom Entrepreneur of the Year Award. The winner will receive a $15,000 prize.

The nomination process is simple. Mom Entrepreneurs can nominate themselves by visiting Your entry will be placed into the Mom Entrepreneur gallery where visitors to the site will vote for their favourites. The top 10 finalists as selected by voting will be eligible for the grand prize, which will be decided by a panel of expert judges..

Voting for your favourite Mom Entrepreneur will make you eligible for prizes as well. There will be 17 weekly draws for prize packages from Mabel’s Labels each worth $110.

If you are a Mom Entrepreneur, this is a great contest to enter. The voting process should provide good exposure for your business and winning the grand prize wouldn’t be too bad either!{}

Jul 7, 2011 - 1 minute read - business news

Scotiabank Forecasts Alberta, Saskatchewan Economies To Lead Nation

Scotiabank is predicting Alberta’s economy will grow at an average rate of 3.8% during 2011 and 2012. Saskatchewan is close behind at 3.5%. Both provinces are expected to benefit from continued demand for their natural resources. Alberta will benefit from continue oil sands development, while Saskatchewan will benefit from further potash development and continued investment in the Bakken oil play.

Canada as a whole is expected to grow an average of 2.6% over the same time period. Ontario and Québec are expected to get off to a weaker start due to poor growth in the United States and the natural disaster in Japan, which has widened their trade deficits. Growth for these two provinces is expected to improve in 2012. Atlantic Canada’s continued soft employment numbers will be a drag on growth.

Jul 6, 2011 - 3 minute read - entrepreneurship

How To Start A Business In Alberta

Albertans have always had an entrepreneurial spirit. If you are thinking of starting a business and joining your fellow entrepreneurs, you have come to the right place. A large undertaking like starting a business can be daunting at first but if you focus on one step at a time you’ll find that things will become more manageable. This blog post will attempt to do that for you. Follow the links for a more in depth look at each topic.

  1. Think about whether you are ready to be an entrepreneur. Talk to your immediate family members to make sure you have their support.
  2. Evaluate your business idea. Does it require a new business model or are other businesses currently operating successfully using this model?
  3. If you have a new business model conduct a feasibility study to confirm your idea is sound.
  4. If your business is operating under a proven business model, conduct preliminary research to make sure that the business makes sense, given your skills and finances. Make sure it makes sense for the market.
  5. If the your initial research or your feasibility study shows that your business idea has a reasonable chance of succeeding, continue to the next step. Otherwise, go back to the idea stage.
  6. Pick a name for your business.
  7. Consult your lawyer and accountant and decide on a legal structure for your business.
  8. Register your sole proprietorship, partnership or corporation. The Alberta Government has a site that will help you register your business name. This can be done at your local registry agent.
  9. Register the domain address for your website.
  10. Write a business plan.
  11. Register for a Business Account Number.
  12. Pick a bank and open an account.
  13. Apply for financing, if necessary.
  14. Apply for a business license and any other license you need to operate your business. The Alberta Government has a all encompassing website for this called BizPal It will take care of your provincial and municipal licensing needs. The site will ask you questions about your business and then suggest a list of licenses and permits to apply for.
  15. Start implementing your business plan. Depending on your circumstances, this could mean signing property leases, buying and installing equipment, building a website and generally getting your business ready to open to the public.

The process of opening your business might differ slightly from these steps, but the list includes the basic tasks that most businesses will need to complete. As you can see, when a large project such as starting a business is broken down into smaller tasks, things become more manageable. If you feel like you need more information on parts of the process or if you would like us to cover additional tasks not on this list, please leave a comment below.