Seeing the future: Cash flow projection\nYou want to know if you’ll be making a profit before going any further. If you skip this step, your chances of failing increase significantly.\nInvestigate your costs to start up and run your business. The most common are:\n\n rent\n \n How much will it cost to rent the location where you want to set up?\n \n \n wages and payroll tax\n \n Will you need employees or can your run the business yourself?\n \n How much do you need to pay yourself to meet your personal living costs?\n \n \n advertising costs\n \n What types of advertising will you use (TV, radio, internet)?\n What is their cost versus their potential return on investment?\n \n \n cost of inventory or raw materials\n \n Will these be imported? If yes, you’ll need to factor in the impact of exchange rates on your profitability.\n \n \n purchase of equipment\n \n general office equipment, such as a phone system, computers and IT network, and furniture\n specialized equipment for your specific line of business, such as restaurant equipment if you’re opening up a restaurant\n \n \n business liability insurance\n \n to protect yourself from liability if someone is inadvertently harmed by your product or service, or if someone is injured on your premises\n \n \n pricing\n \n How much will you be able to sell your product or service for so that’s it’s competitive with others in your line of business?\n \n \n\nOnce you’ve figured out your monthly costs (i.e., your overhead) and pricing, you’re now in the position to determine how many unit sales you need to make to break even. Remember the contribution margin ratio that we looked at in part 1. Use a spreadsheet to build a cash-flow projection model.\nProtecting yourself: Creditor proofing\nIf things don’t work out for your business you could be financially ruined. Therefore, consider the following techniques to protect your personal assets from your business creditors.\n\n Incorporate the business. This will provide you with a level of creditor protection. Most of a corporation's obligations are limited to its assets, so this structure can provide protection for personal assets. This structure also has income tax benefits.\n Always pay statutory debt on time, specifically:\n \n payroll source deductions\n federal and provincial sales tax collected\n employee wages and vacation payable\n Corporate directors can be personally responsible for these debts, notwithstanding that the business is incorporated. In many incorporated small businesses, the shareholder (i.e., the business owner) and director are the same person.\n \n \n \n If you can, avoid giving personal guarantees of your corporation’s business obligations (e.g., landlord, suppliers) unless it is absolutely necessary.\n\nYour next step\nYou will need a financial expert on your team to deal with the issues raised in this blog post. Therefore, I would strongly advise that you contact a CPA who can help you further.\nKeep the conversation going\nHave any questions or comments? Leave them here, or if you want to ask discreetly, you can contact Victor directly.\nDisclaimer\nThe views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.