Definitions of a small business can differ depending on location and industry but one is characterized by the number of employees within a privately owned company. Businesses can also be classified according to annual sales or shipments, annual gross or net revenue, assets or net profits.
According to Industry Canada, a small business has between 1 and 99 paid employees. “B.C. businesses with fewer than 50 employees or less than $5 million in annual revenues are considered to be small business,” explains Mark Eversfield, market research analyst at Small Business BC. Grants, tax credits, and certain regulations make defining a business by size or classification an essential detail for both administrative and legal purposes.
As of December 2012, small businesses accounted for 98.2% of employer businesses in Canada. While often considered to be the backbone of Canada's economy, small businesses are not typically the leader in their industry.
Whether it's been a lifelong dream or an overnight idea, starting your small business isn't as easy as having something to sell or saying you're open. A substantial amount of research will help ensure your concept will stand up against the competition, attract investors and customers and adhere to the many regulations that govern businesses in British Columbia and in Canada.
IDEAS AND EXECUTION
A good idea doesn't always make for a great business. According to Canada Business, there are several important questions to ask when evaluating your idea and how viable it is as a business.
• Is your business idea unique?
• Will people pay for your product or service?
• Who is your competition?
• How will you manufacture or distribute your product or service?
• How will you promote your business?
• What resources do you have and what resources do you need?
• Are there any regulations that may prevent you from operating?
“Do some market research for a viability decision,” suggests Eversfield. “Research your target customer, competition, and a SWOT [Strengths, Weaknesses, Opportunities, Threats] on the industry.”
Once you've determined that your idea is feasible and your business has the potential to be profitable, it is essential to begin with a business plan. A business plan formally establishes your goals, evaluates if they are achievable and examines how they can be achieved.
A necessary step no matter the size or scope of your company, a business plan helps to identify weaknesses, establishes realistic timelines, details financing and legal needs and analyzes the market, the industry and the competition. By completing this step before opening your doors, you can save yourself many challenges and changes in the future and prove to any potential partners, investors or creditors that you are serious about your business and how it will operate.
Your business plan should include detailed information for the following sections:
• Executive Summary
• Company Profile
• Products and Services
• Industry Overview
• Market and Competitor Analysis
• Sales and Marketing Strategy
• Operations Plan
• Financial Plan
With a unique idea and an established action plan, you are providing your business the platform it needs to stand strong during a potentially challenging start up phase and long into the future.
THE FINANCIAL SIDE
While there are several sources of funds available to a small business owner, determining how much is available, how much is required to break even (when your expenses equal your revenue) and where it will come from is an important step of the start up process. Underestimating the amount of money required to start and run a business is one of the most common reasons that businesses fail, making financial planning an essential aspect of a business plan despite how daunting or complex the process may be.
Most potential business owners will first look for funding, beyond their own personal savings, from close friends and family. These types of loans or investments usually don't require formal justification and are not secured by a company or individual's assets but do have to abide by provincial rules regarding investor funds.
While difficult to acquire, grants are an extremely valuable source of funding as the money awarded is not required to be paid back. There are only a handful of government grants available for small businesses, most of which are specifically geared towards certain industries or demographics, making them highly sought after and hard to obtain. If your company doesn't qualify for the few grants available, the federal and provincial governments offer a wide variety of other funding options including loans, tax credits and collaborations created with the small business owner in mind.
Canada Business and Small Business BC both provide extensive lists of all government funding available detailing who is eligible and what is required to apply.
Funding from financial institutions is the second most common form of financing, behind personal savings, but doesn't come easily.
“It's very difficult to finance a start up business,” explains Bob Duffield, vice president and branch manager at Canadian Western Bank. “There is no history of cash, there is no history of profit. You have to have a business plan, you have to have cash flow projections, you have to have a feasibility study. You've got to prove to yourself but also to whoever you're talking to, that your venture is going to work.”
This may mean having 50% of your necessary funds already secured before even approaching the bank for a loan, says Duffield.
Lenders will be looking closely at you and your business, hoping to see several key indicators, before they decide to invest or not. “Banks look at everything from a risk standpoint,” says Duffield.
“How does an owner cover their risk?” Ensuring you have thoroughly considered and not underestimated your costs and cash flow puts you in a more positive position to be approved for a loan.
“Keep your costs down as much as possible,” Duffield advises. “It may take 1, 2, or 5 years before you're cash flow positive and you
have to be able to cover those costs.”
THE LEGAL SIDE
While there are not many legal steps to be taken for a start up company, small business owners must understand the regulations that govern business in the province and across the country and adhere to any rules that may apply.
There are several ways to structure your business depending on your needs and who else is involved in your company.
Sole Proprietorship – a business owned and operated by one individual in which there is no legal designation between the owner and the business. The individual assumes responsibility for all debts and obligations but receives all profits and makes all decisions.
Partnership – two or more individuals with the common goal of making a profit through a business they operate together. Profits and liabilities are shared between partners according to agreed upon terms and the business is not required to be incorporated.
Corporation – a legal entity separate from the shareholders. Registered at the federal or provincial level, this structure protects an individual business owner from being held personally liable for any debts or obligations.
“Partnerships don't need to be registered so it's important for people to know, as soon as they start working with somebody with a common purpose and are sharing the profits, it automatically becomes a partnership,” advises Dana Gordon, owner of Benchmark Law. Gordon says deciding on a structure is unique to each company and will depend on what you do and what the risks are.
Depending on how your business is structured, there are several options available to register your business with both the federal and provincial governments. Because businesses can vary vastly from one to the next, exploring all your options will allow you to determine the best fit for your company.
Once your name has been approved and you have registered your business, you will be required to apply for a business license depending on which region you will operate within. “Everyone that is operating a business – even if it's out of their home – should have a business license,” says Gordon.
“It's a cliche for a reason because it's absolutely true,” says Gordon, prefacing her biggest piece of legal advice to business owners. “Get it in writing.” While business may seem good from the get-go, it's hard to predict any problems that may happen down the road and written agreements will protect you from bitter disputes or challenging debates.
Owners may also need to consider tax requirements, insurance, confidentiality clauses, non-complete agreements, payment terms and intellectual property rights among other concerns depending on the scope and risk of their business.
CONCLUSION
Becoming a small business owner requires an abundance of educated decisions. You might need to open a business bank account, consider your insurance needs, develop a website and social media strategy, or hire and train employees. As Duffield emphasizes, the best thing you can do for your business is research – and research
some more.
Starting your own business or taking over someone else's is a reputable undertaking. With the right research, an open mind to the advice of entrepreneurs and investors and a hands-on attitude, big dreams can become successful small businesses.
