Starting a Successful Business in Canada Kit

Preface

So you don’t like bosses, rush hour traffic, large, impersonal buildings, and office politics. In other words, you hate the nine-to-five grind and working for anyone other than yourself. You want to be independent.

Excellent. This book is for those of you who sincerely want to be your own bosses. No doubt, you’ve probably had a dream about running your own business for years. It may only be a fleeting daydream that comes once in a blue moon or when the boss gives you a hard time. Maybe you have it refined to the point where you even know what kind of business you’d like to own. Yet, somehow you’ve never dared to take the big jump. Well, maybe you’re ready to start. Of course, anyone can start. The trick is to make a success of it.

This book contains a mixture of success tips and hard factual research to give you that edge over the competition. I’ve seen these techniques used many times, and they really do work! Follow them, and you, too, can be on the road to success.

Some small-business people seem to lack confidence, especially at the beginning of their business endeavours. As a potential entrepreneur, you are not a second-class citizen. Now, more than ever, the country depends on you to create the wealth and jobs needed to carry us through the uncertainty of the future.

Consider this: 98 percent of the businesses in Canada are small businesses with fewer than 100 employees. Small businesses are responsible for one-quarter of the total gross national product (GNP) and employ almost one-half of the working population. Small business is the single most important force in the creation of new jobs, and, consequently, for the future of this country.

Some of the obvious trends driving the growth of small business activity include the number of home-based businesses being established throughout the country, the increased willingness by large companies to outsource work to small companies, and the growing number of women who are joining the ranks of entrepreneurs by starting their own businesses.

All this means that small-business people don’t have to take a back seat to anyone. The opportunities are there for all of us. This book will increase the chances of capitalizing on these opportunities.

About Taxes

Throughout this book, I make references to taxes and tax rates. Both federal and provincial taxes on small business have undergone significant changes in recent years, and I suspect more changes are coming with the drive toward harmonized sales taxes. For these reasons, please do not take the tax rates printed in this book as the exact rates you might pay! Check with your accountant, because the rates I describe may be higher than those available when you read this!

About the Numbers

You will see numbers throughout this book. Numbers in balance sheet samples, numbers in estimates of office running costs, and numbers in break-even estimates. The numbers your business will generate will be different!

If you rent office space, for instance, in downtown Toronto or Vancouver, you will not be paying the $750 a month we show in one example, you will be paying a lot more. In many small towns and suburbs, $750 a month might rent you more office space than you need.

Our samples are just that — samples. They are there to help you understand the topic being discussed; they are not our estimate of what your business numbers will be!

About the Workbook

The Starting a Successful Business in Canada Workbook, previously sold separately, is now included with this book on a download kit. It complements the information presented in this book, providing questions and worksheets for you to complete. These exercises are intended to reinforce what you have learned. There are no wrong answers!

one

Why Go into Business for Yourself?

Most people, when asked this question, will automatically answer: To make profits. Well, profits sounds nice and rates a pass on any business exam you might take; however, in reality, profits is very far from the real reason why people go into business for themselves.

Some simply have to start a business because they can’t hold a job anywhere else. Others are driven by some compulsion for power and feel that running a business is the most expedient way of obtaining that power. Still others have such a craving to be independent that they have to be free to make their own decisions in all aspects of their lives, including how they earn their livings. People with inherited money often need something simply to do. Some use their businesses as a way to make them feel more secure or wanted by their employees, suppliers, creditors, or whomever. And the list goes on and on.

As a matter of fact, people who are truly successful at running their own businesses are those who profit from the things they enjoy doing most — because then profits and their ambitions and lifestyles go hand in hand. Work becomes play, or at least it does not become distasteful or boring like a lot of jobs that are available today. In this category are such people as skiing or sailing instructors, pilots, hobbyists who turn their hobbies into businesses, and so on.

What enjoyment can I possibly get out of selling a hamburger? you might ask. Well, perhaps there is not much intrinsic value in what you do, but there may be plenty of trade-offs that make the role of an independent business person worthwhile.

A big business is not necessarily a good business. The right size, from my point of view, means that it suits the needs of the people working within the organization. In fact, you can truly be called a successful business person if your business suits your lifestyle — not just if your business is large. I believe this could be true even if the business loses money, although because of the lack of profits you may have a dispute with the traditionalists on this point. Keep this in mind: If you are truly happy doing what you are doing, who can challenge the fact that you are successful?

The only problem with losing money is that over a period of time you will have to cease doing the activity you like because, no matter how much you enjoy something, there are certain other basic things you need, such as food and shelter. Therefore, over the long run, for a business to be truly successful, there has to be more money coming in than going out.

The point is, while you may be happy running a certain kind of business, regardless of its profit picture, sooner or later you must pay attention to the bottom line. Running a business for reasons that do not coincide with the financial health of a business will sooner or later lead to disaster. At this point you are far better off to step out of the picture and let someone else run the business. Both you and the business will be happier.

You must plan for success and follow your plan. The old adage plan your work and work your plan is even more true today. It is strange how most people spend more time planning vacations than they do planning to pay for vacations! In other words, they put the cart before the horse. In business, you must have a horse (product, service, or skill) before you worry about the cart (capital, methods).

Furthermore, try to use your own skills and talents. You are a human being with special traits, skills, talents, experience, and life needs. Don’t sell yourself short.

I remember a former air force pilot and glider enthusiast who was working in a warehouse. It bored him, and the pay was poor. Finally, he analyzed his situation, quit his job, formed a gliding club, charged reasonable membership fees and instruction rates, and is now rich, happy, and doing what he loves. He even designs and builds personalized gliders — and makes lots of money doing it! Can you see now how doing what you like best can pay off in profits?

Another friend of mine, an ex-naval officer, medically unfit for further service, couldn’t forget the sea. Instead of crying in his beer, he bought, on a low-payment plan, a used fishing boat and now runs his own pleasure-fishing charter service. He’s happy as his own boss and growing steadily richer. That’s what I mean by turning your hobby or first love into a professional business.

Don’t let these two stories fool you however. If you are in business for yourself, the hours are long and hard, and you are never really away from responsibility. You will know plenty of disappointments and failures. You must be able to make the final decision because the buck-passing stops at your desk. Failures cannot be explained away. The condition of the business is always there to destroy any illusions you may have.

Because of these problems, many (in fact, most) businesses do not make it. Naturally, the reason for any business failure is bad management. However, this does not really help you to understand why a business fails.

Management covers almost every aspect of human behaviour. Bad management can mean anything from not being honest with yourself to not being able to take a frank look at your strengths and weaknesses, needs and desires.

The most commonly pinpointed problem of a new business is that of undercapitalization. The owner typically overestimates the revenue and underestimates the costs and the length of time needed to get established. The business simply runs out of gas before it reaches the top of the hill and is able to coast, or it meets unexpected detours on the way and never gets back on the road to success.

The undercapitalization may be the result of lack of experience or knowledge, or because of one of the psychological reasons discussed above. All too often, a person with a little money and an idea jumps into a business opportunity only to become a mortality statistic by the end of the first year of operation.

To run a business successfully, you need the following five things:

(a) A product, a service, or an idea.

(b) Some experience and knowledge in the area you are interested.

(c) A battle plan or strategy.

(d) Capital (money).

(e) A complete and honest assessment of your own character, which shows you’ve got what it takes to succeed.

Now that you’ve got (or are putting together) the first four of these, there’s the nagging question of the fifth qualification: Do you have the necessary personal qualities to run your own business? Some characteristics that are essential to business success are the following:

• Drive: That is, responsibility, vigour, initiative, persistence, and health. You must do more than dream; you must act. You waste no time blaming others. You take risks (although not wildly so) and can live comfortably with the uncertainties associated with these risks.

• Thinking ability: This includes original thinking, creative thinking, critical thinking, and analytical thinking. You are curious and have vision. You are never quite satisfied or content; there’s always a better way.

• Human relations ability: This is comprised of emotional stability, sociability, cautiousness, consideration, cheerfulness, co-operation, and tact. You are persistent and keep trying. You don’t make the same mistake twice but keep on trying until you hit the right combination.

• Communications ability: This is a combination of verbal and written communications. You must be persuasive and able to influence bankers to supply money, employees to work harder and better, suppliers to furnish materials at the lowest cost, and customers to buy.

• Technical knowledge: This means an all-encompassing knowledge of the business, your product or service, and your market.

Do these characteristics describe you? There are some people who are simply not cut out to be owners or managers of small businesses.

Let’s face it: It’s easy to say yes to all the above — and in your own mind the assessment is perfectly objective. However, if you plan to start a business, you have to be positive. Believe you are going to be successful and act like it every day you are working with it. A positive mental attitude does wonders for small businesses.

One word of caution, however: Do not let this attitude blind you to potential risks. Always keep one eye looking for potential liabilities and problems — because they will happen, and the ultimate success of your business depends on how you handle them.

You are not alone. Remember, Canada has more than one million small businesses (defined as any firm that is independently owned and operated).

Small businesses are important to the solution of Canada’s unemployment problem. Politicians are finally waking up to the fact that it is the small business that is relatively labour intensive and provides employment opportunity and not the large (often foreign-owned) conglomerate. As a result, public purse strings are loosening, and tax laws tend to favour small business.

Small businesses are also vitally important to the social health of this country. They contribute to the social fabric of what Canada is today and provide a vehicle for entrepreneurs.

Small-business people are hardworking, dynamic, innovative, progressive risk-takers — all qualities that we, as a country, desire.

two

Setting Your Money Goal and Attaining It

1. Money versus Your Personal Life

By now you’ve decided either that you can turn your main interest in life into a profit-making business or that you need to be your own boss — in other words you want to be independent.

To be independent you need to make a certain amount of money. You need to reach your money goal as fast as possible.

That approach to making money is the only way you can get the money you want to do the things you want to do before you are too old, too tired, and too disillusioned to care.

Let’s dispel any misgivings about making money. Making money is not a mysterious, awesome secret meant only for a chosen few. Far from it. Actually, making money is just about the easiest thing to do in this world — provided you have a money goal, skills, knowledge, and the drive to get what you want out of life.

Simple formula, isn’t it? It is somewhat harder to put into practice, however, for in order to reach your money goal, you must have motivation, know-how, and a workable money plan with a time limit.

There are many interpretations of need. People need houses, food, clothing, cars, vacations, love affairs, paintings, music, and books. For you, the big need is money: A certain amount of money within a certain period of time — in other words, as soon as possible.

You are no exception to the rule. You need all the things that most people need. All the ordinary needs mentioned are vital to everyday living, but to get them you need money.

But, you argue, some successful business people are millionaires many times over, yet seem to devote 24 hours a day to work. Really, they cannot enjoy that kind of grind day in and day out — or can they?

The truth is, of course, that they truly do enjoy their work and the money is strictly a way of keeping score. (That’s what can happen when you work at something you like.)

Now, perhaps this way of living is not to your liking; there is no doubt that people like this sacrifice other things in life, such as their family and friends. But no one is asking you to spend 24 hours a day at the job — and you don’t have to in order to become successful. Almost anyone can start a business and run it with modest success, provided the business does not overtax his or her abilities.

To fulfill your personal needs, you should make sure that you take care of all your life’s responsibilities and yet leave enough creative energy to reach your financial goal. In other words, break life’s needs down and handle them in order of their importance.

You should allot a sensible portion of the day to your leisure, as relaxation ultimately helps you to work harder. Also, you should be sure to get enough sleep; otherwise, you’ll be too tired to work. Without good health, you can’t do anything. Furthermore, you do have your family to think about. Don’t neglect them.

I am sure you know or have heard of some very rich business people who devote their whole lives to making money and are millionaires because of it but have no home or family life. To me, the very reason for being in business is so that you have the time and money to enjoy the people and things you love.

2. Attaining Your Financial Goal

You should write down the financial goal (say, per month) that you would like to attain at the end of a five-year period when your business is firmly established and you can afford to relax a bit. (Don’t forget to make allowances for inflation.)

Next, list the amounts of money that you need just to get by. Be ruthless in listing only those things that are unavoidable expenses. After that, go through the list and see which of those you can cut without causing undue hardship. For example, suppose your car costs $600 a month for gas, maintenance, and insurance. Do you need such a big car? Do you fill up at discount stations? Can you do some of your own repairs? If not, do you have a mechanical friend who could do the repairs in exchange for something you can do?

Here is another example. You own a house and are paying off a rather large mortgage. Do you know that, by using part of the house for business purposes, you can write off part of those mortgage payments, not to mention part of the taxes, maintenance, and utilities payments?

Trivial you say? Not so. If you are paying off a mortgage now costing, say, $600 per month (most of which is interest) plus taxes, maintenance, and utilities of another $300 per month, for a total of $900, you actually need to earn about $1,400 at today’s tax rates to pay that $900 mortgage and maintenance payment every month. By using, say, one-third of the house for business purposes, for storage, or for an office, you can write off approximately $300 per month, which saves you $100 per month in taxes. That’s $1,200 per year — almost enough for a vacation (see Chapter 14 for details).

These are only a couple of examples. You would be amazed at the savings that can result from a little critical analysis of your spending habits.

But, you say, I’m not going into business to scrimp and save. That’s not the point. The purpose of this whole exercise is to determine for yourself what you need to live on while establishing your business.

By doing this and adding on your other business costs — goods, advertising, other people’s wages, rent, etc. — you can easily determine your break-even point or, in simpler terms, what you need to sell on a month-by-month basis to make it. And, don’t forget, even if you are forced to spend less (temporarily), you have attained something that is priceless in the exchange: personal independence.

This is what we’ve established so far:

• You have a desire to do certain things.

• You have an idea about how to use that desire to make money.

• You know that your special skills and ability must be used professionally to get that money.

• You know that you need a certain amount of money to get by (while building your business).

• You know definitely that you will never get that amount of money by working for someone else; so, you will start your own one-person business in order to get that money.

Now, make a move. Get into action. Take the first steps right away.

A great number of people never succeed in becoming independent simply because they are afraid of failure. Some people, strange to say, are even afraid of success. Two-thirds of the things that people fear will happen can never happen.

So start now to be your own boss and make your own decisions. Put your money goal plan into action and start your own money-making business today!

three

What Kind of Business Is Best for You?

Earlier, I mentioned that you should analyze your skills and experience to decide what type of business to go into. If that didn’t give you any clear direction, don’t be discouraged. There are literally thousands of very successful businesses in this country that require only a basic education and just good common sense to operate.

Obviously, you’ve got to be interested in whatever business you choose or you’re not going to enjoy operating it. Those skills that you’ve developed over the years are more than likely the things you’ve enjoyed doing.

Most mechanics that I have met have always loved tinkering with cars from the time they first learned what a wrench was. The main thing to remember is that you are going to eat, sleep, and breathe this business. So, pick something you like.

Look at your hobbies. I’ve personally known several avid photography fans who have turned what was once a hobby into thriving photography businesses. Does anyone know a stamp dealer who didn’t start out as a stamp collector? How many sporting goods shops are operated by someone who hasn’t been a sports enthusiast since childhood?

Suppose you spent several years in the navy and you were born in Newfoundland or Nova Scotia. You might want to own and operate a boat rental marina. So, how would you assess your skills and interests? Well, living on an island, you spend a great part of your life on the water. You love the sea. You’ve built boats and you know a lot about engines. You’ve done boat repairs. You’ve successfully completed courses in seamanship and pilotage. Sounds like you’re an expert sailor.

But what do you know about renting boats profitably? How would you get the boats to rent? Build them yourself or buy them? How are you going to finance your business? Where will you operate from? Shouldn’t a boat rental business be near the sea or a large lake?

Too many questions? Just six questions so far. Let’s hear your answers. You’ve worked for a boat rental firm. You’ll buy boats (easier than building them yourself). You’ll finance yourself by renting money from your local bank (see Chapter 6 for tips). You can lease a small chunk of land on a river that leads down to the sea or a lake.

Great. You are headed for success. You already own a boat? Better still. You can start renting it right away, can’t you? And, you once worked as an insurance agent, so you know all about business insurance and how to protect yourself from breakage, theft, and depreciation. Terrific!

It looks as though your chances for immediate success are higher than most. So get started. Rent the boat you now have by placing a small classified advertisement in your local newspaper. Here’s an example:

FOR RENT

19-ft. clinker-built runabout with 45-horse outboard, trailer included. Hourly, daily, and weekly rates. Phone …

Warning: Before you rent your boat, make sure you are covered by insurance, and find out what you should charge by telephoning several commercial boat rental outfits. Keep your prices competitive, and you’ll be pleasantly surprised.

Now, with a little money coming in from renting one boat, buy another boat on the time-payment plan and rent it. Then, when you are ready, rent out motors separately. A lot of people own boats but they don’t have motors. Outboard motor rentals can be very profitable.

Get the picture now? Start small, have a growth plan, and keep to it.

Now let’s take another look at your position:

• You own two boats and are making money renting them.

• You have several outboard motors of different sizes and you’re renting them at a profit.

You have had inquiries about sailboats. What should you do? Hunt around for a good used sailboat that you can buy at a price you can afford. Buy or lease it, with option to buy, and rent it out the same way you rent out powerboats.

Let’s size up how things stand now:

• You have two powerboats rented