Category Archives: Small Business Start-Up

Financial Mistakes to Avoid When Starting a Business

Some financial mistakes are minor and can be corrected on the fly, but some can easily burn the house down, so to speak. It’s a big reason why the majority of startups fail during their first few years of business. A cash flow that suddenly dries up, a huge unexpected expense, or a rapidly accumulating amount of debt have all been known to bring even the most promising new businesses to their knees.

Here are some of the biggest financial mistakes new business owners tend to make and how to avoid them.

Not Separating Business and Personal Bank Accounts

Although having one account may seem more convent, commit yourself to creating separate bank and credit card accounts for your business before you start to collect revenue. Doing this at the beginning will make it much easier to do the accounting for your business, plan for tax time and budget for unpredictable expenses that may lie ahead.

Having separate accounts will also allow a more accurate picture of your business’ financial health by preventing overlap between what you personally earn & spend and what the business is generating & costing on a monthly basis. This will also better shield you from damaging your credit if your business were to take a nosedive.

Making Big Purchases for your Business

When you start a new business, it’s understandable to want the best equipment, a fancy website and office. However, if you’re itching to make major purchases during the startup phase of your business, think these decisions over carefully. Some expenses will be mandatory depending on the type of business you’re starting, but you need to ask yourself if the expense is going to help you generate more revenue in the short-term.

Other expenses that aren’t essential to the growth of your company offer very little value to your bottom line. Make do with what you already have. Grow your business first and accumulate a higher level of disposable cash before spending on the “nice-to-haves.”

Making Big Personal Purchases

During the first year of business, there are a lot of unknown variables and unexpected learning opportunities that will come your way. The reality is that you’re going to hit roadblocks, you’re going to have failures and some of these may come with a big price tag on them.

If you purchase a car, home or any other large personal purchases and your business has something unexpected come up, you won’t be able to pay yourself next month. You can’t be strapped down with a huge amount of personal expenses. Be as minimal as possible in your business and personal life while growing your new business.

Not Saving for Slow Times and Emergencies

There is no shortage of people telling you to keep a stash of savings at hand for unexpected expenses. Call it saving for a rainy day, but there will be times when something happens and covering the cost with your credit card is a short-sighted solution that will only create more problems down the line. Most financial planners advise entrepreneurs to keep at least three months worth of expenses in an emergency fund for both their business and their personal expenses.

Not Creating a Clear Budget for your Business

If worst comes to worst, you may be able to run your business without a clear plan for the future, but you’ll have a very hard time succeeding without at least a rough budget to help guide what you can and cannot afford to spend each month. Your job is to steer your new business towards profitability, and you can only do that if you create a budget for operational, marketing and other expenses. Having a clear budget increases financial discipline and clarifies the roadmap to business growth.

Create a budget, track your expenses, save for emergencies and always think of expenses in terms of how they will generate revenue for your business.

 

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Sole Proprietorship, Partnership & Corporation

Which legal structure is right for your business?

Each form of business ownership has advantages and disadvantages that should be considered before choosing a legal structure for your business.

Sole Proprietorship

A sole proprietorship is a business owned and operated by one individual.

Advantages

  • It is inexpensive to register your business as a sole proprietorship in Ontario.
  • It only has to be renewed every five years.
  • Operating as a sole proprietorship means you own 100% of the business.

Disadvantages

  • You are legally responsible for the business; it is considered an extension of yourself.
  • You are personally responsible for any debts and liabilities your business incurred.
  • Your personal assets can be seized and used t o discharge the liability you’ve incurred if your business fails.

Partnership

There are three types of partnerships in Canada;

General Partnership – Each partner is jointly liable for the debts of the business.

Limited Partnership – Liability is limited to the amount you invest into the business.

Limited Liability Partnership – Is available to groups of professionals such as; lawyers, accountants, and doctors.

Advantages

  • Eases some of the liability burdens a sole proprietorship would bear.
  • Has the same tax simplicity as a sole proprietorship.

Disadvantages

  • One partner can be held responsible for debts incurred in the name of the business by another partner.
  • Without a partnership agreement, your partner could make you responsible for debts incurred.

Corporation

A corporation is a legal entity separate from its owners or shareholders.

Advantages

  • No member of the business can be held personally liable for debts, obligations or acts incurred.

Disadvantages

  • This legal structure is expensive and can be difficult to set up and operate.

Pick a form of business ownership that is right for your current circumstance, it can be altered, then review as your business grows.

 

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6 Financial Mistakes Small Businesses Make

Budget is a key factor when it comes to starting a business. Maintaining a healthy bottom line is an important factor to your business’s success and growth.

Business owners often make a variety of financial mistakes and let their hard-earned money leak away. Here are common mistakes and how to fix them.

  1. Overpaying at Tax Time

Every business has a responsibility to pay tax, but often overpay. Misunderstanding tax deductions or mismanaging expenses can lead to paying more than you have to. Keep track of receipts and expenses to take advantage of tax deductions at year end.

  1. Being Blinded by the Top Line

It is easy to compare your business to the competition but don’t get caught up by their top line when your bottom line is much more important.

  1. Impulse Buying During the Start-Up Phase

When starting up, it can be easy to get carried away with unnecessary expenses that can eat into your bottom line. Focus on expenses that are necessary to start, then when your business is more profitable think about buying that new desk or replacing old technology.

  1. Diversifying Prematurely

After generating some significant income, some business owners look into diversifying their product or service before investing back into the business. Before making changes to your business plan, ask yourself if it is a good idea and why you are doing it.

  1. Confusing Being Busy with Being Productive

Money is earned by working effectively with the resources you have, not running yourself into the ground to turn a profit. Identify what areas need improvement to be more efficient and profitable and set goals to improve.

  1. Not Keeping a Safety Net

Running your own business means your cash flow may not be consistent for the first little while. Without a safety net, your business could fail your first dry spell. Saving and maintaining at least two months of operating costs is a great way to give your business a chance during the first few rough patches.

By avoiding these common financial mistakes, you can protect your business’s future and transform it for the better!

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Calculating Start-up Costs

Whether you are trying to secure funding or you are trying to figure out what it will take to get your business up and running, an accurate estimate of start-up costs is necessary to predict financial performance for the first year or few years.

Every business has different cost requirements, but these steps will help you gather some numbers to start.

  1. Determine your start-up cost structure.

Here are six cost categories for new businesses;

  • Cost of sales
  • Professional fees
  • Technology costs
  • Administration costs
  • Sales and marketing costs
  • Wages and benefits

Think about these cost categories, how they affect your business and how they will be weighted across your business.

  1. Develop comparables

Compare industry leaders with your business’s costs. Some aspects like your revenue numbers will be different, but it will help you break down how much you should be spending on each cost category.

  1. Project start-up costs conservatively.

When calculating start-up costs, keep in mind you may need to cover expenses for a few months before you even open for business. And once you are operating, it will take time to become self-sustaining. Be conservative in the early stages with your cost projections and estimated revenue.

  1. Separate one-time costs from reoccurring costs.

Distinguish which costs you will have year-to-year like salaries and rent from one-time costs like furniture and equipment. This will allow you to establish a budget for after the start-up period.

 

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4 Tips to Evaluate your Business Idea

So you’ve spent some time thinking and you’ve decided to quit your day job and start a new venture as a business owner with your great business idea! Wait a minute, let’s take a step back… Before committing to starting your business full time, it’s important to evaluate the potential of your business idea.

Here are some things to consider when testing the feasibility of your business idea.

  1. Find your target market.

A key factor in running a successful business is having customers who want to buy your product or service.  Picture your ideal customer, their age, gender, income, and location. This will give you a better idea of who you are targeting and how many are in your area.

Conduct a market analysis to determine how big the market is, how saturated it is and if there is room to add your product or service to the mix. Once you have done your research, then you can decide if it is the right target market for your business.

  1. What makes your product/service unique?

While you researched information to identify your target market, you probably found other businesses with similar products or service in your area. This doesn’t mean your business won’t work, it just means you will have to identify what makes your product or service different from the others. You can do this by creating a unique selling proposition, an effective tool that helps you define your brand and make your business more memorable.

  1. Research your competition.

Along with knowing who your ideal customer is, you also need to know who else is trying to target that same audience. Knowing who your competitors are and what they offer that’s different from your product or service is important to understand before you move forward with your business.

  1. Financial forecasting.

A big concern for most business owners is money, especially at the start. What will it cost you to get off the ground? Where will your capital come from? What are you start-up and ongoing expenses? What is your earning potential once you’re up and off the ground? These are all questions you should have answered before starting your business so you have a better chance at success.

Going through this type of evaluating may seem like a long process but it could save you time and money in the long run. Once you’ve done your research and have decided your business is feasible, the next step is to create a business plan.

For more information on business planning, contact the Cornwall Business Enterprise Centre.

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A Business Plan is the Key to Success

Often times we mistake a business plan as a document that is put together for a new business and then set aside after the start-up process. But really, the plan changes over time as the business develops and should be reviewed on a yearly basis.

Here are a few good reasons why you should write a business plan when starting a new business.

  1. To test the feasibility of your business idea.

Writing a business plan is the best way to test whether or not your idea is feasible before you start. Writing a business plan can save you time and money because it will reveal if your idea is untenable.

  1. To give your business the best chance for success.

Writing a business plan will ensure that you pay attention to operational and financial goals and details like budgeting and market planning. Working through a business plan will make the start-up process smoother and help you avoid problems as your business becomes eshablished.

  1. To secure funding.

To start a new business you will need operating and start-up capital. Having a well developed business plan gives you a much better chance of getting the money you need from established financial institutions such as a bank.

  1. To make business planning manageable and effective.

Reviewing your business plan can help you see what goals have been achieved, what changes need to be made, or what direction your business’s growth should take.

Writing a business plan is time-consuming, but it is essential if you want to survive the start-up process and run a successful business.

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How to Build a Business without Quitting Your Job

At some point or another, most people think about starting a business but never take the first step. One of the most common reasons to not take that first step is because you already have a job. But, with the right approach it is possible to start a business while keeping your day job.

Why not quit? – There are some valid reasons to not quit your job, but the reality is you may not need your job as much as you think.

You need the money – Money is a key factor during the start-up process of a new business. If you can secure enough capital or a line of credit, you may not need your job to keep you afloat. You may want to keep your job as a safety net, but safety nets don’t always lead to better overall performance.

You’re unsure about your idea – If you don’t have a good idea yet, you probably shouldn’t quit your job. While this is a valid reason, why not spend more time developing your idea?

If you have considered any of these reasons to not quit your job, and you still aren’t convinced it’s a good idea, follow these strategies to start a successful business without quitting your job.

Be Realistic – First, be realistic about how much you can handle while still maintaining your job. There are only so many hours in the day, and you will have to commit to one or the other eventually.

Focus on the idea – You won’t be under the gun with deadlines, and you won’t be strapped for cash, so make the most of this time by developing the best business plan you can.

Networking – The wider your range of professional contacts is, the more options you will have when it comes to growing your business. You never know when or where you could meet a potential partner, client, or employee.

Take baby steps – Never rush the process of starting a new business, take your time and slowly advance your idea forward. Test the waters.

Tread carefully – If you spend too much time on your business, your professional work will suffer. Find a health balance to keep both moving along well.

Remember, there is no perfect time to start a business.

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