Owning a small business can be a rewarding venture as long as you plan ahead and consider the possible pitfalls before opening up shop. Statistics Canada’s Survey on Financing and Growth of Small and Medium Enterprises, 2014, found that new business entrant survival rates are on the rise based on data gathered between 2002 and 2014. These findings are excellent news for business owners, and much can be attributed to the many resources and experts available to assist with the development and growth of a healthy business. While it can be exciting to jump right into a new business idea, it’s vital to establish a proper foundation first. To ensure your business gets off on the right foot, be sure to consider these components:
Have a Solid Business Plan
You may have a great idea you’re sure will turn a profit, but without some preliminary research and a detailed plan, you could be throwing your money away. Most small businesses that fail did not start with a solid business plan or the idea was not well researched. A business plan must show that your idea will be profitable within a given timeframe and that all start-up expenses are considered. With the availability of many resources online, a business plan no longer has to be a daunting task. The Business Development Bank of Canada (www.bdc.ca) is a great online resource to help you draft a plan, including financial spreadsheets and planning documents. Other resources such as StartUp Canada (https://www.startupcan.ca/) and the Ontario government small business website (https://www.ontario.ca/page/small-business-advice-support-services-regulations) are excellent sites to get you started.
Manage a Separate Business Bank Account and Credit Card
It may seem manageable to use your personal bank account for business, especially if your new business is small, but it is much more professional to keep business and personal banking separate. Not only does it set a professional tone to your clients, but it also makes reconciling business expenses more straightforward and concise. In the event of a tax audit or insurance claim, all of your financial records are in one place.
The same applies to credit card use. Many purchases such as software subscriptions and online orders are made using a credit card so keep one separate for business only.
Invest in Accounting Software
Keeping accurate and up-to-date financial records is key, especially as your business grows. Most software packages available today are user-friendly and will help you not only track expenses and income, but also set goals for your business and establish a budget for expansion, marketing and equipment. It will help you prepare your annual financial statements which you may need to present to potential investors.
One of the primary reason companies do not succeed is due to poor record keeping. It may seem like a chore, but proper money management allows you to determine whether or not the company is making money and where to adjust business practices along the way. Invest the time right at the beginning and commit to establishing a routine of proper accounting practices.
Keep Track of Payables and Receivables
It is essential to monitor your accounts receivables (AR) to ensure your company is paid for the goods or services you have supplied. Even if your company is small, ensure all business is being tracked so that you can stay on top of your cash flow needs. As your business grows, you will have a reliable system in place to monitor and collect on the work or goods provided. It is also just as important to keep track of your accounts payable (AP) to ensure your business stays in good standing without unpleasant surprises. Consistent tracking helps the company meet payment deadlines while managing cash flow effectively. Without understanding your expenses, you cannot correctly estimate how much money you need to earn for the business to thrive.
Set Aside Money for Taxes
One of the main reasons business owners do not succeed is that they do not set aside money for taxes. The Directors are personally liable for funds held in trust such as source deductions and HST. By not being prepared for their tax obligations, companies can suffer a considerable loss and, in some cases, lose the business altogether. It is advisable to consult with a certified professional accountant to discuss all financial aspects of your business and ensure no rock is left unturned.