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Canada| Small business

Eight questions to ask your accountant before starting a business

Going out on your own is fraught with risk. Get some professional advice before you take the entrepreneurial plunge

Entrepreneurialism is on the rise, with many so-called “wage slaves” dreaming of breaking free and starting their own businesses. But, before you abandon the security of your nine-to-five, you better be sure you’re ready to take the leap. We talk to two experts—CPAs Eugene Chong and Nicole Heighington—to find out exactly what questions you should be asking your accountant—and yourself.

How should I structure my business?
When you’re starting out, you must choose whether to operate as an unincorporated sole proprietorship, incorporate your business federally with Corporations Canada, or incorporate provincially with the relevant authority. If you have partners, that adds another layer of complexity to consider. A CPA can help you identify the best option and mitigate the risks associated with whatever path you select.

How should I finance my business?
You may choose to dip into your personal savings or hit up family and friends, take on debt or give up part of your equity. There’s no right or wrong way to start a business, but a CPA can help you work through the pros and cons of each option. With the tightening of Canadian mortgage rules in 2018, Chong notes that some entrepreneurs “may have to lean toward private lenders or the ‘Bank of Mom and Dad.’”

Is this a viable business? (i.e., Can I quit my day job?)
“Businesses live and die by cash flow,” says Heighington, owner of AthenaGrace Financial Services. She and Chong both advise sitting down with a CPA to create financial projections that forecast when and from where your revenue will come. You’ll also need to estimate things like start-up and operating costs, debt repayment costs, and how much you (and your partners) may want to draw from the business over time.

How should I set up my books?
First and foremost, Heighington advises people to keep their personal finances and their business finances separate. That means a separate bank account for business deposits and withdrawals, and a separate credit card for business expenses if possible.

What are my tax obligations and opportunities?
Depending on the location, size and nature of your business, you may need to deal with corporate and/or personal income taxes, payroll taxes, sales and commodity taxes like PST and GST/HST, and more. On the flip side, you may be eligible for certain tax deductions or credits. When it comes to tax planning, a CPA can help you understand your obligations and take advantage of opportunities.

How will I know how well my business is doing?
“If you want to be successful, you have to know how to read your numbers and understand what they tell you,” says Heighington. Your CPA can help you set up systems to gather the right data, teach you how to read your financial statements, and point out which reports and ratios you should be watching closely.

What should I look out for in 2018?
“In the past, many solopreneurs leaned toward incorporating their businesses to gain tax advantages,” says Chong, adding that new tax rules may make incorporation a less advantageous option than it used to be.

Heighington also recommends keeping an eye on interest rates in light of the Bank of Canada’s recent rate increase. “If you’re borrowing to start a business, you need to be careful about how much debt you take on,” she cautions. “If interest rates go up by two percent, will you and your business be able to afford it?”

What happens if or when I want out?
“When most people start a business, they focus on the target market, the initial setup and the capital requirements,” says Chong. “What they don’t think about is their exit strategy at the end of the day.” Whether you’re in it for the long haul or open to whatever opportunities come your way, it’s wise to have a game plan in place from the get-go.