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Introduction This booklet was designed to be of assistance to would-be and existing business owners. There seems to be three models involved in entering the business-ownership game;
Insofar as the three situations are concerned, all of the following material will be of varying relevance, mainly because franchise businesses tend to be more "turn-key", and an existing business will naturally have some of the preliminary steps covered.
Assumptions
A Business is Born Before you are ready to sign a lease, or obtain a phone number or business cards, a fundamental decision must be made, and that is the planned structure for your business. I will give you the possibilities and my thoughts which may assist you in your decision. Sole Proprietorship This structure is based on a single owner who reports the net income on a personal tax return only. There are many ways to look at the most beneficial structure, and I will try to depict most of them. Beneficial situations: low and easy start-up, simple accounting, less regulation, use of possible start-up costs to finance operations through personal tax refund, possibility of change to corporation later, and finally, where the majority of the income will be drawn out by the owner, there is no tax incentive to incorporating. Non-beneficial situations: personal assets would be at risk, family members could be involved in a capital sense, image necessity, capital requirements. I believe you should have some communication with a professional, be it lawyer or accountant, before your structure is finalized. Once done, a sole owner may easily file the necessary registration papers. Partnership Many of the same points of discussion exist for a business that will be a partnership. In reality, it is somewhere between a sole proprietorship and an incorporated company, but closer to the former. Some of the different aspects of the partnership; another owner can bring in more financing and more creative opportunity, the record-keeping and tax returns are slightly more complex, and partnership agreements need to be ratified. The use of a professional advisor for the partnership agreement is highly recommended. Corporations If none of the first two seem to fit the mould, an incorporation will most likely be the correct vehicle. Firstly, personal assets to the extent of non-guaranteed ones are protected from financial risk of a business disaster. Tax planning techniques are opened up to a great extent due to the fact that the legal entity and/or the shareholder may derive income from the business transacted. The image of a corporation may benefit your business as well as the fact that financing capital may be easier through the sale of equity or debt that is tied to a shareholder’s relationship with a lender or his/her financial profile. There certainly are costs; the cost to incorporate, the cost to file federal and provincial corporate income tax returns, as well as the requisite personal returns, and a general increase in paperwork. My feeling is that a proprietor who wishes to incorporate as a sole shareholder is a case where the owner may be able to, depending upon the personal expertise, complete more professional duties in regards to the actual incorporation procedures. But afterwards, it is a fact of life that a professional advisor can assist you in many ways, including just as an independent listener. The government has installed computer terminals in a few locations locally for registration and incorporation use. The Business Window at Revenue Canada, and possibly the Ministry of Finance, Sales Tax Branch would be the next logical direction to be headed by any of the three entities above.
Managing Your Business So now, if you are a franchise owner or have bought an existing business, chances are good that your suppliers of goods or services for resale are in place for the near future. But a new business must create a chain of supply that makes sense. To source out suppliers, the local library and the Business Enterprise Centre, together with the Yellow Pages, would be a reasonable place to start. After that, the Federal Business Opportunities Sourcing System or the Directory of Associations could, through the enormous listings posted, provide a starting point. Your ability to deal with order-taking, obtaining credit, business cycles, financing, and forging a relationship of trust will be key in the success of the business. Next, your costs to operate and pricing strategy should be evaluated. Depending on the type of business, you may need to purchase material, provide and compensate for labour and absorb overhead costs. A partial list of these costs would include; salaries, benefits, loan payments and interest, rent or lease expenses, transportation, bank charges, insurance, professional costs, advertising, telephone, utilities, general office and depreciation charges. An understanding of cash and non-cash overhead like depreciation is essential in formulating a business plan. Your initial capital will have to finance the purchase of these depreciable assets and also some refundable but upfront costs, like rent, lease, utility deposits and insurance premiums. Pricing is, of course, not an easy task. Assessing your costs will lead to a breakeven point, and my recommendation is to charge generally at least 30% greater than breakeven, to allow for profit and growth. But other considerations will be in play, beginning with customer demand and sensibility to price, and ending with the competition and their pricing. To summarize, each new business owner should know at inception whether there are reasonable grounds for SUCCESS. The formulation of the breakeven point is essential at this time. A calculation of fixed and variable costs together with selling price are quantified. Fixed expenses include all expenses you must pay to stay open, including rent, utilities, insurance, interest on loans, owner’s draw, and some minimum office costs. Variable costs are all expenses that vary with sales or production, and include materials, labour, transportation and costs tied to sales/production. As a formula, breakeven can be calculated in units or sales dollars, whichever makes more sense. Managing also means selecting a location that will suit. There are many varying types of locations, including business centres, identity offices, malls, plazas, industrial malls, downtown centres and a home-based location. In this analysis, accessibility, physical needs, room for growth, affordability, image, and timing are factors to consider. Advertising and promotion is also quite important at inception. Your business should have a target market and message that defines your perceived niche strength. The objectives and costs associated with the promotion of the first year and later need addressing. Of course, there are so many methods of advertising. Print or broadcast media, outdoor signs, direct mail or point of sale parties, business cards, and premiums and promotions can all be utilized to bring the customer’s interest to your product or service.
Business plans, Accounting, and Financial Statements At this stage, before a sale has been consummated, the business plan is a must. This is your final coda for the total business package you have been working on. A simple format that you may follow is:
A title page and table of contents are self-explanatory. An Executive Summary highlights some of the essential details of the business plan that you feel are most important to introduce. The Company Summary will state objectives that the business will aspire to over a term of five years. A Management Summary will detail the duties, skills and qualifications of yourself and any employees that are brought to the company. You will outline the structure and some of the other applicable details of the company environment. A Marketing Summary may be the largest section, simply because of the planning logic. It should include areas for product or service description, market research, cost and pricing strategies, location and physical layout, and possible advertising and promotion and supplier information. The Financial Summary will detail the required capital needed and describe the uses of this money, as well as any other sources of investment that the company plans to utilize. Financial Statements will usually include cash flow forecasts, income statements and balance sheets projected for two to five years, and possibly personal financial information. An appendix will be the basis for any support of the plan. You would include resumes, contracts, and any information from an independent source that relates back to one of the format topics. Accounting is simply reporting. But many of the computer software accounting systems being marketed are capable of much more. Software such as Simply Accounting, Quickbooks, and Business Vision will create and print cheques, invoices, purchase orders, and other documents. As well, payroll, inventory, job costing and many other tasks can be handled. These programs are all-inclusive, while in other software packages, there are separate modules for each defined functional area. As well, a manual accounting system can be utilized if the business is small and uncomplicated. I think your advisor can give you good advice in this area. You will need to record or report each transaction, be it a sales invoice or deposit, a purchase of a supply, or payment of an expense. Areas such as bank, accounts receivable, inventory and accounts payable will normally be analysed on a monthly basis, while other accounts will be analysed annually. You will note that section 8 of the Business Plan was titled Financial Statements. Before you open your doors, the cash flow statement will be useful for forecasting where you will obtain your cash, and what you will use it for. It will determine financing needs and repayment terms. You must remember the reality of receipt and payment cycles in your particular sector of business in order to predict your cash flow. At the fiscal year end of your business, you will produce a balance sheet and income statement either manually or as part of the software you chose. The balance sheet is a snapshot of the financial position of the company, and will give you an idea of the equity or net worth, together with detail of all assets and liabilities of the business. The income statement will cover a period of time up to the year end, and states the net income of the business with appropriate details of the revenues generated and expenses comprising this statement.
Financing Possibilities The purchase or start-up of a business may involve outside financing for a variety of purposes; land, building, equipment, goodwill, refurbishing existing premises, working capital or other start-up costs. There are many loan programs available, but the situation must fit in order to apply. Here is a brief synopsis of some of the more popular programs, and the bank associated with it: Small Business Financing Program Any Chartered Bank or authorized lending institution. Not for working capital. Not for farming, charitable or religious enterprises. Up to 250K over 10 years. Young Entrepreneurs Program - Royal Bank For those 18-29 years young. New, full-time business. Up to $7,500 over five years. Student Venture Loan - Royal Bank For students and summer businesses. Up to $3,000, paid back within the calendar year. Micro Business Patient Capital Young Entrepreneurs (18-34) Business Development Bank of Canada has a number of programs to complement others. Up to $3,000. Small Business Job Creation Loan Fund - CIBC For funding expansion leading to one full-time job. $10,000 - $100,000 over 3-5 years. Royal Bank Credit Line Like a credit card with personal worth guarantees. Up to $35,000 for any purpose and no term. Seed Loan Fund - CODA Local fund for businesses with no access to other funds. Self-Employment Assistance - CODA Income support, training and technical assistance. Investment required. Bank of Nova Scotia Professional Plan Tailored for the facilities required by the start-up of a professional practice.
Timely Advice Your business will need to register as a proprietorship or partnership, or file incorporator’s papers. Either can be facilitated by going to the Business Enterprise Centre at the Kitchener City Hall; the Provincial Sales Tax office at 305 King Street West in Kitchener; the Cambridge Chamber of Commerce at 531 King Street East, Cambridge; or the Guelph Business Enterprise Centre, 1 Stone Road West in Guelph. I do not recommend self-incorporation, except for a very few individuals. Other registrations that you may have to look into; the Employer Package from Revenue Canada, and/or GST registration. One Business Number will cover the employer GST and Corporate Tax aspects, but you also may need Employer Health Tax and Workers’ Safety Insurance Board coverage. As well, Ontario Retail Sales Tax and a vendor’s permit may be needed. Here are some of the many business-efficiency tips I have mentioned over the years; use a company credit card for the receipt and payment terms, use supplier discounts as much as possible (assuming cash flow allows it). You may find the insurance company and municipality may agree to blended monthly payments, which allow for smoothing of cash outflow. As well, you may have to make initial deposits to utilities, but these payments can be refunded to you (possibly with interest). Various utilities have different rules affecting how long the deposit is needed, and the rules governing its return. A comparison of utility suppliers for gas and telephone service may prove very beneficial. Service providers must remember to bill, bill, bill, as no product shipment signifies revenue recognition. Lastly, use all your resources.
Resources The best possible start for investigating all the possibilities of your new business is at the Business Enterprise Centre, 200 King St. W (City Hall) in Kitchener. Guelph has its own centre at the Stone Road Mall, and Cambridge has a satellite telephone office. These offices are partnered by such groups as Basics Office Products, Bell, CIBC, the municipalities, Electrohome, The Taaz Group, the Ministry of Consumer and Commercial Relations, and Economic Development, Trade and Tourism, as well as the Venture Training Program. At these Centres, you will meet with a Small Business Officer or a Business Information Officer who can assist you in the following important areas:
The Centre conducts seminar series which will provide you with additional information and put you in contact with persons with similar ideas. Most importantly, the Centres Contact Information Sheet is invaluable. On the front and back of the sheet are the most current details for a multitude of subjects and organizations that you will need to resolve, and the people who will assist you in this process. They include:
In addition, the Kitchener Public Library has a Business Resource division which provides valuable services to local entrepreneurs. The dedicated business librarian has compiled a brochure of available resources (online also), as well as separate subject areas such as accounting basics for small business, choosing and purchasing a computer, and Business Information Seminars put on by KPL. As well, the Alliance for Youth Entrepreneurship seems to be a worthwhile networking group of young potential business-owners. The alliance includes: CIBC, Conestoga College, Association of Collegiate Entrepreneurs, Business Development Bank of Canada, Small Business Self-Help Office, Corporation Identity Promotional Group Inc., KPL, The Rialto Group Ltd., Youth Entrepreneurship Program, WWINET, Waterloo Enterprise Centre and the Young Entrepreneurs Association. They pledge to help guide, provide tools, and give aid to the start-up organization in compiling resource people. Other Resources Ontario Business Connects - 1(800)361-3223. TD Business Planner - software on floppy disk from Toronto-Dominion Bank. The Canada-Ontario Business Services Centre (COBSC) -Interactive Voice Response, InfoFax, Website. Step-up: Business Expansion Training; and Young Entrpreneurs Program - Ministry of Economic Development and Trade. Industry Canada: Community Storefronts - Internet sales and marketing, website development service. Alliance for Youth Entrepreneurship- E-Mail :- aye_kw@hotmail.com Website Resources Canadian Imperial Bank of Commerce Canadian Business Service Centres Ontario Business Service Centre Canadian Venture Capital Association Canadian Youth Business Foundation Working Ventures Canadian Fund Inc. Business Development Bank of Canada Small Business Enterprise Centre. -email - bec@bigfeat.com Ontario Ministry of Economic Development & Trade These are just a few of the resource areas available, but I believe you will be well served by them. Of course, I can be thought of as a resource centre also, and I would be happy to talk or provide data that would assist you in your particular journey. Best of luck!
James R Playford Chartered Accountant
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