First-time entrepreneurs: Boldly stepping into the unknown (Part 2)

You’ve decided to be an entrepreneur, but what now? How can you avoid some common mistakes?

Earlier this month, we spoke about how to get started once you’ve decided to become an entrepreneur. Now, let’s move on to what to be aware of. There are three main things you need to be aware of:

  • risk (i.e., failure)
  • cost (i.e., money)
  • regulations (i.e., taxes)

Failure is a possibility

Various sources have reported that between 80 and 90 per cent of small to medium enterprises (SMEs) fail in the first year, with even more failing in the first three years. The Government of Canada reported that, during 2013, there were 78,430 SME births, but also 83,240 deaths. That means there were more businesses that closed than new ones created. This is the first thing you need to know. Just knowing this should spur you to do proper research and planning before starting your business. Remember the story of the tortoise and the hare.

You will need to spend money

Dire Straits might have sung about money for nothing, but we all know that in this life nothing is truly free. Your business will cost money to get off the ground. Some common costs incurred include:

  • registration of a company or other legal form, such as a partnership
  • intellectual property costs such as registering a trademark name
  • acquiring customers/clients by buying an existing business or significant marketing costs to gain new clients
  • sufficient start-up inventory to begin with if you’re selling a product

It is an axiom that you don’t start building before calculating the cost, nor do you declare war without knowing you can win.

Death and taxes

Two great certainties in life are death and taxes. Of these two, you are only responsible for taxes. You will be required to pay taxes on your business even if you don’t incorporate. If you have more than $30,000 in taxable supplies (that is, sales that are subject to GST/HST), then you will need to charge GST/HST and remit this to the Canada Revenue Agency (CRA).

You will also need to pay income taxes on the net income in your business personally if you don’t incorporate, or in your business if you do incorporate. You will also be required to make payroll tax remittances for any salary and wage payments to yourself and employees. These are the three most common taxes you will be responsible for. Various other regulations may also apply to your business.

Finally, some closing thoughts on dos and don’ts.

Do:

  • prepare a detailed business plan and at least a summary strategic plan
  • consult professional advisors (legal, accounting and other)
  • research business assistance such as government grants
  • read good business books such as Guerrilla Marketing by Jay Conrad Levinson or Good to Great by Jim Collins 
  • develop your networking skills by joining a chamber of commerce or other networking group 
  • move ahead before planning and research
  • over-extend yourself or risk more than you are willing to lose
  • badmouth your previous employer or complain about customers and suppliers

Don’t:

  • move ahead before planning and research
  • over-extend yourself or risk more than you are willing to lose
  • badmouth your previous employer or complain about customers and suppliers

Think small. Starting a business is like having a child. Unless you plan to fail, it is a long-term commitment.

Keep the conversation going

So much remains unsaid. What have we not addressed? Do any repeat entrepreneurs have some tips to share? Post a comment below.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Bernard Grobbelaar, CPA, CA

Partner, Oikonomos Chartered Professional Accountants
Bernard is the founder of Oikonomos Chartered Professional Accountants, a full-service accounting firm. Oikonomos services clients in five areas: tax, accounting, outsourcing, consulting and assurance. Bernard has experience serving public and private companies, as well as not-for-profit organizations. As a husband and father of four, he knows the challenges that come with building a business.

Highlights

Update your knowledge and strengthen your network at this must-attend conference covering the most important issues and trends affecting audit committee members.

It’s probable that someone you know is deep in debt. If you are observant, you might see one of these seven signs.