So You Want to Start a Small Business?

The United States is home to millions of small businesses. While many thrive, there are certain risks and challenges that often accompany operating an independent company. If you're thinking about starting a small business, keep these considerations in mind.

· Create a business plan. When you're fired up about an idea, it's easy to overlook the details. A business plan forces you to define your business goals and how you plan to achieve them. It also helps you examine your competition and identify where your products or offering fit in the mix. Lastly, a thorough plan includes the strategies and tactics you will employ to move from ground zero to profitability and the costs and timeframe for getting there.

· Beware of going "all in." You may have read about people who maxed out their credit cards or mortgaged their homes to fund a business that brought them quickly into wealth. Unfortunately, this is not the norm and the odds are stacked against this financial house of cards. Think twice before putting everything on the line for your business. Invest as much time and energy as you can afford, but avoid overextending yourself financially as you pursue your business plan.

· Test the waters. To minimize your financial risk, consider launching your new business on a small scale before quitting your day job. Many small businesses have been started on the side while entrepreneurs maintain a fulltime job. The idea here is to keep income flowing until your business is viable and you can pull a salary without compromising your income.

· Save for a rainy day. Even the savviest entrepreneurs can get caught in a market down cycle. And no one can predict all the things that might affect your bottom line. Individuals who are in business for themselves are doubly in need of a financial buffer should things take a turn for the worse. If sales falter, you're still on the hook for your business expenses, and you need to pay yourself too. Build savings into your business plan and keep your credit in good standing so you have access to cash if and when you need it.

· Invest wisely. When you do need to put money into your business, be smart about spending so that your dollars multiply down the road. Hire competent people who are as passionate about the business as you are.

· Protect yourself. Every business is vulnerable to potential risks, and it's important to think about the worst case scenarios and how you'd handle them. What if a fire destroyed your office? Would your company collapse if you or a key employee were injured? If a customer, vendor or employee sued your business, could you afford your day in court? There are insurance products made to address all of these risks. Factor in adequate protection as part of your cost of doing business.

· Create an exit strategy. When you're just starting out, it's hard to envision the day you'll turn the reigns over to someone else. Succession plans are an essential part of a sustainable business, especially if you hope to sell and use the proceeds to fund part of your retirement.

· Seek financial advice. If you're serious about starting your own business, get on the right track with financial guidance. Find a qualified financial advisor to look over your shoulder as you develop your business plan and launch your new career. Their financial acumen and fresh perspective can help you steer clear of financial trouble.

Scott Serfass, CFP®, CRPC®, CDFA, ChFC®, CLU® is a Financial Advisor with Ameriprise Financial Services, Inc. in Charlotte, NC. His team specializes in fee-based financial planning and asset management strategies. To contact him, visit http://www.ameripriseadvisors.com/scott.d.serfass

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How Much Capital Do You Need For Your Small Business?

Miscomputing just how much capital you need to start a business is repeatedly cited as one of the top reasons businesses fail. The first thing you need to find out is all the expenses involved with getting started in the first place. Beyond that, however, it will easily be at least 18 months down the line before you start seeing any profits. So many businesses have failed because their owners thought that their sales during the first year or so would be enough to cover operating costs. This is rarely the case.

While most failures come from underestimating the needed capital, overestimating it can also be disastrous. In the first place, trying to come up with too large an amount off the bat will delay you or even prevent you from starting at all, especially if you're asking for the money from a bank or investor. In addition, owing too large an amount means the payments could keep you in the red for too long.

Prepare

It's ridiculous how many businesses start without even a proper business plan. While I won't go into detail on this (this is discussed in another post), one of the crucial parts of the plan is figuring out the required budget and coming up with realistic projections on sales. Many starting entrepreneurs are at a loss for where to start looking for this information. It's simple really: ask others who came before you.

Ask

Look for businesses similar to yours, and ask the owners about their own experiences back when they were just starting out. Some may refuse to help a future competitor, in which case, you can ask others in another town, places who you won't be directly competing against. It may be even better to ask your potential suppliers since you could be a future client. Remember to ask about discounts for bulk, possible credit terms, anything to lower your initial needed capital.

You can also ask the experts, such as established trade associations. The SBA also sponsors the Service Corps of Retired Executives (SCORE), who provides resource materials and even mentorship from retired business owners.

Research

Do your homework. Identify everything you will need to spend on, figure out the going rates for each, and come up with realistic projections on your expected sales. Several sites have itemized lists that you can use to help you get started on this.

Good luck!

If you liked this and would like to learn more, check out http://www.retellityblog.com for more great business and marketing advice.

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How to Setup a Business in Ontario, Canada?

How to setup a business in Ontario?

Setting up a business can be an overwhelming task with a lot to comprehend. It all starts with a dream and a vision, but how do you turn that dream into reality? The dream of becoming your own boss and having the freedom to make your own decisions can be a complicated one at the beginning. Once you have determined on the actual business and its inner workings, you will have to move on to the next step of executing that business. This is where a lot of people get stuck and don't really know where to go next.

In this article I will explore and shed light on several different business structures available in Ontario. I will also explain how to be in compliance with Canada Revenue Agency (CRA) tax obligations.

The three most common structures are Sole proprietorship, Partnership, and Incorporation.

1. Sole proprietorship

Sole proprietorship, also known as a proprietorship or a sole business, is a type of business that is owned and operated by a single individual. Other individuals do not participate or own the business. This is the most simplest form of operating a business.

A sole proprietorship is simple to setup, you can operate the business under your personal name. If you desire to use an operating name you are able to register a Master Business License and operate under an operating name. The requirements for setting up a sole proprietorship are outlined in the provincial legislation.

The shortfall with a proprietorship is that the sole proprietor is personally liable for the business. There is no legal separation between the business and its owner. This creates unlimited liability from creditors and other business debts.

What are the setup cost?

The setup costs are relatively low. To Register a Master Business License online the government fee is $60. There are additional fees for name search and enhanced business name search.

How is a sole proprietorship taxed?

A proprietorship is not a separate legal entity and is taxed based on the proprietors personal income. A separate tax return is not required. The income or losses of the proprietorship will be taxed at the applicable marginal rate of the individual. If the business is profitable this may put you in a higher tax bracket.

There is no need to obtain a CRA business number for a sole proprietorship. However, in certain circumstances you will be required to register a HST number. If you have employees you will be required to register a payroll number. All of which can be done over the phone by calling the CRA business line.

The income and expenses from the sole proprietorship can be reported on your T1 Personal Income Tax return on the T2125 Statement of Business Activities form. You will be required to keep all your receipts for income tax purposes.

2. Partnership

Much like a sole proprietorship, a partnership is not a separate legal entity. A partnership arises from the legal relationship between two or more people that join forces to start a business. The partners do not have limited liability from creditors and personal assets could be seized. This has given arise to several different partnership structures, including General Partnerships, Limited Partnerships, and Limited Liability Partnerships; each of which has a different level of personal liability.

What is a General Partnership?

In a general partnership each partner is jointly and separately liable for the liabilities and obligations of the partnership. In this type of partnership, the partners do not have limited liability from creditors and personal assets could be at risk.

What is a Limited Partnership?

A limited partnership consists of a general and a limited partner. The limited partner has limited liability and only the initial investment is at risk to creditors. The general partner has unlimited liability.

What is a Limited Liability Partnership (LLP)?

A LLP is created under The Partnerships Act which allows certain professionals to practice under a LLP. The legislation states that the partner is not personally liable for any liabilities of the partnership that arise as a result of negligence by other partners of the LLP. The partners' investment and the assets of the LLP can be at risk.

Do I need a partnership agreement?

Although a partnership agreement is not required by law, it's a very good idea to have one in place. The partnership agreement would help avoid disputes among the partners in the future. The partnership agreement should include the following:

General governing rules regarding the partnership

How to add or remove partners

What happens in case of death of a partner

How to divide and distribute profits and losses

How is a partnership taxed?

A partnership is not a separate legal entity and does not file a separate tax return. The profits and losses flow directly to the partners, who report the income/losses on their personal tax return. A partnership could be required to file a T5013 Statement of Partnership Income depending on revenues and other criteria. A partnership calculates income and expenses in accordance with section 96(1) of the Income Tax Act which states that income and expenses have to be calculated at the partnership level.

A CRA business number for a partnership is not required. However, in certain circumstances you will be required to register a HST number. If you have employees you will be required to register a payroll number. All of which can be done over the phone by calling the CRA business line.

3. Corporation

A corporation is a separate legal entity which can be incorporated at the federal or provincial levels. A corporation is separate from its shareholders and must file a tax return annually regardless of the revenues it makes. A shareholder of the corporation is not liable for debts of the corporation. Although a corporation can be named in a lawsuit, the shareholders have limited liability to the capital contributed to the corporation.

What is a Federal (Canadian) incorporation?

Federal incorporation will allow you to operate and open branches all across Canada with the same name. The corporate name is recognized all over Canada. A Federal corporation is required to file a annual return every year as long as the corporation remains active. You will also have to register in the province you decide to operate in.

What is an Ontario (Provincial) incorporation?

Ontario or provincial incorporation will only allow you to have a branch in Ontario. If you decide to open a branch in another provide you will be required to incorporate there as well (the same name might not be available). With an Ontario corporation you are still able to sell your products across Canada.

How is a corporation taxed?

The income earned in the corporation is taxed at the corporate rate. The funds left over after paying taxes are considered retained earnings of the corporation. The retained earnings are distributed to the shareholders through dividends and are then taxed in the shareholders' hands at their respective marginal tax rate.

The setup costs can range from $500 to $5,000 depending on the tax structure and legal advice needed.

When to file corporate taxes?

All corporations have to file a corporation tax (T2) return every tax year even if there is no tax payable. If you are a CCPC the payment is due 90 days after the corporate year end and filing is due 180 days from the year end.

CRA Business Number

The CRA will open a business number for your corporation. The CRA will request that one of the owners or directors provide a social insurance number and major business activity.

GST/HST Number

You will be required to open a HST number if your revenues are going to be above $30,000 or you plan on collecting HST on the goods or services you provide. You also have the option to voluntary register for a HST number from the beginning. It is critical that you review the CRA's GST/HST Guide to stay in compliance of the regulations.

This CRA tool can determine if you Should register for a GST/HST account?

Payroll Number

You have to register for a payroll account before the first remittance due date. Your first remittance due date is the 15th day of the month following the month in which you began withholding deductions from your employee's pay.

Conclusion

The type and size of business will often dictate the structure of the business. A lot of businesses start as a sole proprietorship (for the above reasons) and as they grow they will change into a corporation. There are tax provisions which can be used to roll over the business to a corporation tax free. Once this is done the CRA will have to be notified and everything can be changed over.

https://www.ontario.ca/business-and-economy/small-business-advice-support-services-regulations

http://www.servicecanada.gc.ca/eng/lifeevents/business.shtml

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