Many businesses fail within the first few years. So, before you start, be sure to have a plan. Consider the following:
- Develop a business plan: A business plan should clearly define the product or service you will be selling, and outline your goals and objectives with your business. You should understand your costs, determine your prices and develop your marketing strategies. Whether you create a formal document or a rough outline, having a clear business plan is essential for helping you focus on your goals, allocate your resources effectively, and achieve success.
- Determine your business structure: You’ll need to decide whether to incorporate or operate as a sole proprietorship or partnership. Incorporation offers tax benefits and legal protections, but also involves additional paperwork and costs. Operating as a Sole proprietorship or partnership may be simpler and more cost-effective but offers less protection against liability. Consider the pros and cons of each option to make the best decision for your business.
Once you have a plan, you’re ready to start the process:
- Choose a business name: It's important to choose a unique and memorable business name that reflects the nature of your business.
- Register your business: Depending on the type of business you are starting, you may need to register your business with the Alberta Government's Corporate Registries office.
- Obtain any necessary licenses and permits: Depending on the nature of your business, you may need to obtain various licenses and permits in order to operate legally. This could include a business license, or other permits required by your local government.
- Set up a business bank account: Regardless of your structure, it’s important to keep your personal and business finances separate, so you'll want to set up a separate bank account for your business.
- Know your filing obligations: You should be aware of all your sales tax and income tax obligations and registration requirements, including all applicable payment and filing deadlines.
- Find a bookkeeper, and establish a recordkeeping system: It's important to keep accurate financial records for your business, including income, expenses, and other financial transactions. Having a clear and organized recordkeeping system can help you track your financial performance, comply with tax laws and regulations, and make informed decisions about your business.
Overall, starting a business involves careful planning and research to ensure that you are prepared for the challenges and opportunities that lie ahead. You should also seek advice and guidance from professionals to ensure you start off right. We’re here to help you every step of the way!
When structuring your business, it's important to consider a range of factors, including the nature of your business, your goals and objectives, your personal spending habits, your plans for growth, and the number of owners involved. Corporations can offer significant tax advantages to their shareholders due to the small business deduction and lifetime capital gains exemption, but also involve additional paperwork and costs. As a business grows and multiple owners are involved, a combination of corporations may be an effective way to provide each owner autonomy in managing their accumulating wealth. Ultimately, the best business structure for you will depend on your specific needs and circumstances. Schedule a call with us today, and we’ll help determine the right structure for your business.
The rules for claiming vehicle expenses are structured so that, as a business owner, you can deduct reasonable expenses to the extent that the expense relates to your business. As you can imagine, in the absence of additional rules for the use of vehicles in a business, there’s a significant potential for business owners to abuse this principle and receive significant “personal perks” by deducting personal usage of the vehicle.
Because there are different ways to claim vehicle expenses, it is important to choose the optimal structure, and understand how your vehicle usage can expose you to punitive tax rules. It is also important to know what documentation you will need to support your claim.
The amount of money you should invest in your business depends on the size of your business, your goals, and the resources you have available.
When starting a business, you may need to be mindful of your costs, especially if you don't have access to external financing. One way to do this is through a "bootstrap" approach, where you handle many of the tasks involved in running your business, including sales, advertising, and service delivery. As your business grows, you can consider delegating tasks to others in order to increase the value of your time.
It's important to be cautious about doing your own bookkeeping, as errors or delays can be detrimental to your business and limit its potential. Cleaning up your books can be more costly than delegating your books entirely.
Knowing how much to pay yourself is extremely important, even before starting your business. The amount you should pay will depend on your personal financial needs, the financial performance of your business, and your long-term business goals. It may be helpful to implement personal budgeting practices in order to ensure that your business has the resources it needs to grow and succeed. Understanding your monthly expenses such as housing, food, and other basic necessities can provide a benchmark to be used in your business plan.
Proper bookkeeping, and an understanding of your business finances will help you know what resources your business has available.
If you are incorporated, you should know whether you pay yourself a dividend or salary. There are many factors involved in making this decision, including administrative requirements, investment plans, and more.
If you’re not careful, you can price yourself out of business. If your prices are too low, regardless of how much you sell, you will never make enough to be successful. If your prices are too high, you will struggle to sell. It is more common for business owners to price their services/products too low to generate sales. Offering discounts or low prices should always be done strategically (ie. to generate awareness), so that you don’t burnout or cause your business to fail.
Here are some common signs that your prices are too low:
- You are working full-time (or more than full-time), and are generating little (or no) profit
- All of your leads and prospects become clients
- You are feeling burnt out
You should identify what you can do to increase the value of your offering to your customers:
- Differentiate yourself from competitors
- Improve the quality of your offering
As you focus on value, you can increase the demand for your services/products, which will allow you to sell them at a higher price.
Other pricing models to consider include: cost-plus pricing, value-based pricing, and discounts (ie. quantity, seasonal, loyalty, etc).
Pricing issues often stem from a business owner’s insecurities. So believe in yourself, you are worth it!
The easiest way to determine if you are profitable is to look at your cash account: is it growing? However, your cash account may not actually reflect the profitability of your business. For example, if you are reinvesting significant resources in other assets or marketing, your cash balance will not reflect the direction of your business. On the other hand, your cash may be growing because you have outstanding GST, payroll, income tax or other payables. Financial statements, however, provide a way to assess and measure your performance, independent of your “cash flow”.
A business is typically not profitable because of low sales volume, low margins, or both. To resolve issues with profit, you should have an accurate understanding of the problem. Otherwise, you may burnout as you grow your business.
In running a business, you will have two types of costs: fixed and variable. Fixed costs, also known as overhead, are expenses that remain constant regardless of your sales volume. Examples of fixed costs include rent, salaries, and insurance. On the other hand, variable costs are expenses that change in proportion to your sales volume. These costs are often associated with the cost of delivering your product or service and can include materials, labor, and shipping.
When starting a business, it can be beneficial to keep your overhead costs low in order to minimize expenses while you build your customer base. Strategies for doing this might include operating out of your home, doing your own marketing and advertising, and outsourcing minimal tasks.
Variable costs, on the other hand, can provide a level of predictability in terms of how much you will spend as you grow your sales. It is important to grow your business at a rate that is consistent with your business goals, risk tolerance, and access to funding.
You should understand the costs that are making up each sale, in other words, you should know your margins. You can increase your margins by raising prices or reducing your costs. It is important to carefully consider these options and to find a balance that allows you to maintain a healthy and sustainable business.
You can deduct any expense to the extent that it is used for business purposes. Many by nature go through intense mental exercises to arrive at a business purpose to justify a personal expense. This process will only expose you to significant risks and can be detrimental to your business. For example, if you have personal expenses in your business, you may be assessed with significant penalties from CRA, or you may not be able to obtain financing because your financial performance looks poor.
If the expense is business related, deduct it. If it’s not, you cannot deduct it. Please reach out to us for expenses that have mixed purposes (ie. home office, personal vehicle, etc) as there are specific rules around the deductibility of these expenses.
There are many ways to increase your revenue, including increasing sales volume (ie. repeat customers, new customers), increasing your prices and expanding your offering.
Your marketing function is one of the most important aspects of your business, so don’t neglect it. To begin, you should do the following:
- Register a Google Business Profile so you can be found online
- Create a website (you can create simple websites using templates with websites such as Squarespace or Wix)
- Create business profiles on social media (Facebook, LinkedIn, Instagram, etc)
To increase your online presence, you will need to post regular content, have positive Google reviews, and invest in Search Engine Optimization (SEO). Whenever you hear positive feedback about your business, make it a reflex to ask for a Google review.
You can also create referral programs, offer volume discounts, or start an email campaign. It is important to stay connected to your customers, and regularly offer value in meaningful ways.