More people than ever before are starting their own businesses. According to the latest numbers, small businesses (less than 99 employees) employed roughly 70% of Canada’s workforce, 98% of employer businesses are small businesses and small businesses contribute almost 42% of GDP generated by the private sector in Canada. In other words, the success of the Canadian economy relies heavily on the success of small business owners and Canadian entrepreneurs.
As a public business accountant in Toronto, Tangs Accounting is firmly on the side of small business and have been for years. Our passion is giving small business owners the bookkeeping services and accounting insights they need to meet and exceed their goals, so they can focus on providing their customers the best experiences possible.
To help even more Canadian small businesses succeed, we’ve provided our insights on the top ten mistakes to avoid when starting up your new business.
1. Not Having a Clear Business Plan
A business plan can be as complicated as a 100-page document that includes:
- Business goals
- Market research
- Detailed budgets for all aspects of the business
- Competitive analysis
- Executive team bios
- Financials and sources of funding
Or it can be the cliché “back of a napkin” plan that lists all of your costs to supply a product or service and a market-sustainable price that supports a healthy profit. But there has to be a plan – especially if you need financing to get off the ground.
The more detailed and accurate the plan, the easier to see how realistic your vision and viable your business are.
2. Failing to Register Your Business
Many entrepreneurs are eager to jump right in and start selling their products or services before taking the time to choose a business structure, checking if their business name is already taken, registering with CRA and applying for the permits and licences they need. Things get even more complicated if you need to hire staff before completing these tasks.
Each business structure has its advantages and disadvantages depending on your specific business, how it’s run and how much protection you feel is best. In a nutshell:
- A sole proprietorship requires the least startup capital and has the least regulation to worry about. The profits go to the owner but the owner assumes full liability for the business.
- A partnership is easy to form, has tax advantages and multiple sources of investment capital. But partnerships also have unlimited liability and control over the company may become disputed.
- A corporation has more protection including limited liability and continuous existence but corporations are closely regulated, expensive to organize and require the most record keeping.
Even one-person businesses need to register before or as soon as possible after starting operations. It’s also to your advantage to do so to start saving all receipts and claiming all business expenses. Questions on choosing the right structure, registering it with the government and dealing with taxes and payroll can be answered by consulting a firm that offers accounting services for businesses.
3. Getting the Finances Wrong
Whether it’s not having enough capital at startup, underestimating operating costs or wasting cash, avoiding financial missteps is critical to a business’s survival. Part of your business plan will ideally include up to a year’s worth of financial projections. But those predictions are no good if the numbers are wrong.
Always overestimate your costs and underestimate your revenue until your business is in full swing. Cash flow is the life blood of every business but is even more important for startups so be diligent about collecting on accounts and ensuring there is more cash coming in than going out when your business is in its infancy.
It also crucial to keep immaculate financial records and statements to know where you stand. Keeping on the right side of your finances is a perfect example of the importance of business accounting.
4. Ineffective Marketing
Many entrepreneurs and small business owners believe there isn’t a man, woman or child that can’t benefit from their products or services. If you ask them who their target market is, they’ll say “everyone.”
But that isn’t realistic, and in order for your business to be successful, you need every dollar you spend on marketing to produce enough of an ROI to justify the money and effort spent. It’s also important to know how much it costs you to acquire a customer through marketing and how much that customer spends with you.
Social media, organic search and paid ads are all excellent tools for managing marketing costs as long as you have a brand identity, know which segment of the population it will likely resonate with and how and when to reach them.
5. Trying to Do it All
If you’re a sole proprietorship, wearing multiple hats and handling every aspect of the business is only natural. But knowing what you can do passably well and what you need help with shows itself early on. Even if you are legitimately good at everything, there are only so many hours in a day and you can only be in one place at a time. Also, the busier you get, the less time you have to deal with issues before they become major problems.
The most successful business owners aren’t the ones that operate businesses entirely by themselves. It’s the ones that hire the right people for the jobs that need to be done by someone else and who are expert facilitators and delegators.
6. Setting the Wrong Price
Not only do you need to price your products or services in relation to the market in your area, but you have to ensure that your price covers your expenses and includes a profit – otherwise your business will spin its wheels until either you or it burns out.
How you price will depend on if you sell products or services and whether your services are billed as a flat fee or an hourly rate. One way to calculate an hourly rate, for example, is to add all of your tools and equipment costs, operating expenses, include a yearly salary, add a small percentage for profits, divide that number into a daily minimum income requirement and bill accordingly.
7. Not Evaluating Progress and Adjusting as Necessary
Patience is required in the beginning and panicking if your business doesn’t come flying out of the gate early is also a mistake. But, depending on the type of business you’re in and the market conditions, if you feel that your sales or profits aren’t at an acceptable level, it’s time to revisit everything from your operating procedures to your mission statement.
This is where having an accountant organize your business finances and prepare financial statements is essential as accurately pinpointing the right challenges and finding solutions is much easier when everything is broken down into numbers that tell the story.