Here’s how you can set up your Canadian small business for success, from the get-go.
Actionable Checklist to Start Small Business in Canada
If you’re an entrepreneur based in Canada, all set to launch your own small business, one of the crucial aspects you will need to master to make it to the big leagues is your business’s backbone: the financial system. This blog post will guide you on how to set up and maintain your small business’s finances while staying compliant with Canadian regulations.
Determine the business structure (Sole Proprietorship, Partnership, Corporation)
Register your business federally
Check for name availability and reserve it if necessary
Complete the federal business registration form
Pay the registration fee.
Register your business provincially
Determine if your business requires provincial registration based on location and business type
Fill out the provincial registration paperwork
Submit the registration fee
Obtain necessary municipal permits
Identify the required permits for your business operations.
Complete the permit applications.
Submit the applications along with any required documentation and fees.
Open a business bank account
Develop a Business Plan (Here’s a Business Plan Template to get you started. Click Here to Download a PDF of Business Plan Template)
Obtain necessary business insurance
Understand tax requirements and obligations
Choose a financial management system
Ask for help from a virtual CFO
Or click on the download button to download a PDF File of To-Do List for yourself.
To understand how and why you should do each of the steps mentioned steps (and find all the required resources on a single page) simply visit the parent blog of this To-Do list: Pre-requisites to set up a successful small business anywhere in Canada.
To have our in-house Small Business Financial Experts do your Business Registration, Management or Both Schedule your free Consultation Call.
What are the 3 Business Structures in Canada?
Once you have an idea for your small business, one of the first actions you will be taking is choosing the kind of business structure to move forward with. How do you want to take action on your business idea? This choice impacts the taxes you’ll have to give for this new business and will determine what you’re going to be held responsible for (also known as your liabilities) in case the business doesn’t grow as intended. Canada government gives you three options here:
Sole Proprietorship
You, yourself, are the business in a sole proprietorship structure. The company’s losses are your losses, and all its profits are yours to take home as well.
Pros
The pros of a Sole Proprietorship in Canada are:
- Simplicity and ease of setup with minimal formalities
- Complete control over the business
- All profits go directly to the owner.
Cons
- All losses go directly to the owner. If a business deal goes wrong or an accident occurs, you could be personally responsible for any financial fallout.
- Sole proprietors sometimes find it more difficult to secure business loans or outside investment, as lenders and investors may perceive a sole proprietorship as a higher risk than other business structures.
- Depending on the success of your business, this business structure could potentially put you in a higher tax bracket and increase your tax burden.
- Transferring a sole proprietorship can be more complex than selling a corporation or partnership, as the business and owner are legally considered the same entity.
If you’re a sole proprietor who retains a virtual Chief Financial Officer (CFO) from the beginning, they can help structure your small business in a way that minimizes the risk to your personal assets during challenging times. Overall, while a sole proprietorship can be a good option due to its simplicity and ease, it’s important to be aware of the potential financial risks involved when setting up your business.
CFO services of TCSI are the best services you will ever count on. Click down here to select the required CFO service from TCSI and begin the process.
Partnership for small business in Canada
If you're going into business with one or more of your friends, family members or acquaintances, they are your partners and you are making a partnership structure.
Pros
- You can invest more money and knowledge to start the business.
- You can share the work and decision-making responsibilities.
- You can take advantage of individual skillset to benefit the business.
- Working together can create a team spirit which often inspires and drives the early-on founders.
Cons
There are several potential drawbacks to consider when forming a partnership:
- If partners have different visions or strategies for the business, it can lead to disagreements and conflicts.
- If the business runs into financial trouble, partners’ personal assets could be at risk. Each partner is also legally liable for the actions of the other partners.
- There might be instances where one partner might end up contributing more time, effort, or resources to the business compared to others. If contributions are not equal and aren’t addressed, it can lead to resentment and conflict.
- All partners must agree to the transfer if the business is to be transferred to someone else.
- The departure or death of a partner can jeopardize the business unless there is a legally binding agreement in place that outlines the procedure for such situations.
- In a partnership, you have less control compared to a sole proprietorship.
Partnership Agreement for Canadian small business
To mitigate the cons of a partnership structure, a well-defined partnership agreement can be created before entering a formal partnership. This can serve as a roadmap for your collaboration, outlining the rights and responsibilities of each partner. This agreement should address various aspects such as:
- Decide how partners will share profits and losses. Will it be split evenly, or depend on how much money or time each partner puts in?
- Set a process for making big decisions. Will everyone need to agree, or will a vote decide?
- Define what each partner is responsible for in the business. This makes sure everyone knows what their job is and that everything gets done.
- Plan for how to handle disagreements or fights between partners. This could include bringing in a mediator or arbiter to help find a fair solution.
- Think about how a partner might leave the business, whether they choose to, retire, or die. The agreement should say how the other partners will buy the leaving partner’s share and how they’ll figure out its value.
Corporation
A corporation is a “separate legal entity” from its owners. This means that a corporation is its own legal "person." It's separate from the people who own it, i.e., you.
Pros
- In a corporation, the owners’ (shareholders’) liability is limited to the amount they have invested in the company. Personal assets are typically safe and can’t be used to pay the corporation’s debts or liabilities.
- A corporation continues to exist even if the owners change or die. This makes it a stable business structure, especially for long-term projects and investments.
- Corporations can raise funds more easily through the sale of stock. This can be an attractive feature for investors and can also support more significant growth and expansion.
- Incorporating can add credibility to your business, which can be beneficial for attracting both customers and potential investors.
- Depending on the individual situation, there can be tax advantages to incorporating, such as lower corporate tax rates and potential tax deferral opportunities.
- Shares in a corporation can be easily transferred or sold, which can be an advantage in terms of flexibility and potential exit strategies.
Cons
- There are more administrative tasks involved in its formation and management of a corporation, which can be daunting for a small business owner.
- While there can be tax benefits to incorporating, there might also be more tax responsibilities involved. Corporations are required to file a separate tax return apart from the personal tax return of the owners.
- Corporations are subject to more regulations and must comply with federal, provincial, and local laws. Regular legal, tax, and regulatory filings can be expensive and time-consuming. This includes annual reports, financial disclosures, and other documentation required by the government.
- You must prepare articles of incorporation, bylaws, and resolutions. Also, you need to keep detailed records including meeting minutes of the board of directors and major shareholders.
- In a corporation, decisions are often made by board members or majority shareholders. This means you may not have total control over the business operations, especially if you do not hold most of the shares.
- One of the major drawbacks of a corporation is the potential for double taxation. This occurs when the corporation pays taxes on its profits and then shareholders pay taxes again on the dividends they receive.
- In a corporation, there can be disputes among shareholders which could impact the operation and success of the business.
- Dissolving a corporation can be a long and complex process, requiring the settlement of all debts, the distribution of remaining assets to shareholders, and the submission of necessary paperwork to government.
It’s wise to get advice from a professional to see if structuring your small business as a corporation is the right way to begin with
Registration and Permits
Once you have decided a business structure for your small business in Canada, the next action to take is to register your business, and get required permits for it.
Federal Business Registration (FBR)
Obtaining an FBR number allows you to interact with the federal government for various purposes, including:
Registration for Sales Tax (GST/HST)
If your business generates over $30,000 in revenue in a single quarter, or over $30,000 in a single year, you’ll be required to register for GST/HST. An FBR number is necessary to collect and remit HST to the Canada Revenue Agency (CRA).
Importing and Exporting Goods
If your business relies on importing or exporting goods, you’ll need an FBR number to comply with customs regulations.
Receiving GST/HST Refunds
If you incur GST/HST expenses on business purchases, you can claim input tax credits (ITCs) to get those taxes refunded. An FBR number is required to file GST/HST returns and claim these ITC rebates.
Provincial Business Registration
In most provinces across Canada, business registration typically involves registering your business name and obtaining a Business Number (BN) with the provincial or territorial government.
Registering your business in any province in Canada
If you are establishing your business in Alberta, British Columbia, Manitoba, Saskatchewan, or Quebec, Canada government has established partnerships with these provinces to streamline and accelerate the registration process. You can start this process by clicking down here.
For business registrations in other provinces, use the following collection:
Specific requirements and procedures for business registration can vary slightly between provinces and territories. The linked websites provide more detailed information and can guide you through the registration process in your specific jurisdiction. If you would like to get a quote for our small business experts to get you registered, both federally and provincially, simply tell us by clicking the button below!
Municipal Permits for small business in Canada
Depending on your business location and type (e.g., food service, construction), additional permits might be required by your municipality. These could include zoning permits (to ensure your business operates in a designated zone), health inspections (for businesses handling food or beverages), fire safety certificates, business signs permit, and occupancy permits etc.
The best way to find out which municipal permits your business needs is to contact your local municipal government office. Most municipalities have a dedicated department or resource for business inquiries. You can find contact information for your local municipal government on their website.
Canadian Federation of Independent Business (CFIB) also offers a variety of resources for small businesses, including information on municipal permits and regulations.
Open a Business Bank Account
While not mandatory by law, having a separate business bank account is highly recommended for your small businesses, regardless of its size.
Pros
- Separates business income and expenses makes bookkeeping, record-keeping, and tax filing significantly easier.
- Having a dedicated business account reinforces the legitimacy of your venture.
- You can readily track income, expenses, and profitability to make informed financial decisions.
- Organized financial records from your business bank account streamline the tax filing process for you.
- Certain business services and financial products may require a dedicated business bank account. Examples include merchant accounts for accepting credit card payments or applying for business loans.
Exceptions (Rare Cases)
- If you’re a very small business in Canada with minimal income and expenses, and you’re confident in meticulous record-keeping practices for your personal finances, using a single account might be an option in the initial stages. However, as your business grows, transitioning to a separate business account becomes highly advisable.
Develop a Business plan for your Small Business Idea
A business plan provides a roadmap for your business venture. You write down your objectives, what strategies are you going to use to break into the market and what will be the initial financial requirements. Your business plan can serve as the foundation when you open your business to attract investors. It demonstrates the viability of your business idea and your ability to manage finances effectively.
Keep it Simple
There’s no one pressing you to write a super-lengthy document as your business plan, especially when its your first time. Focus on outlining the core elements of your business only. A good hack could be write everything down that you can think of, organized and/or disorganized, confirmed or in-pipeline, everything related to your business venture, write it down. Then cut it, remove the parts that provide excessive details, add in the numbers (date of starting, amount you have invested initially, partner numbers if any etc.) and shape it into a concise plan. A short, to-the-point business plan is often more effective than a lengthy, complex one.
Start with What You Know
Put down on a piece of paper (Or MS Word or Google Docs, w/e you like) your business idea, your target market, and your competitive landscape. Research these areas to gather as much information as you could. You can find valuable resources online, at your local library, or through government agencies that support small businesses.
Structure Your Plan for small business in Canada
There is no universally applicable template for a business plan. Different businesses have unique needs and goals, and as such, their plans vary significantly. However, if you have never written a business plan before, the uncertainty of what-to-write can lead to procrastination. To make it easy for you, we’re providing a business plan template that can be used as a foundation to build your business plan. This structure is flexible and can be tailored to suit the needs of your business.
To get a copy of business plan template, click below.
Obtain Business Insurance
Depending on your industry and risk factors, your business could require an insurance plan. Common types of business insurances that you can opt for are:
Commercial General Liability (CGL) Insurance
This protects your business from claims of bodily injury or property damage caused by your business operations, products, or services.
Errors & Omissions (E&O) Insurance
This covers claims of professional negligence or errors that result in financial losses for your clients.
Property Insurance for small business in Canada
This protects your business assets (e.g., equipment, inventory, furniture) from damage caused by fire, theft, or other covered perils.
Business Interruption Insurance
This helps cover lost income and operating expenses if your business is forced to temporarily suspend operations due to a covered event. Consulting with an insurance broker can help you assess your business risks and recommend appropriate insurance coverage.
To facilitate decision-making on whether you should get a business insurance or not, it is advisable to consult CFOs with extensive financial knowledge and business acumen. They have a keen eye to identify potential vulnerabilities and provide informed recommendations for insurance coverage, that are within your budget and tailored to your business.
TCSI’s CFO services are here to help in the growth of your business. To get the required one, tap the button.
Understand Tax Requirements
As a small business owner, you’ll be responsible for various taxes, including income tax on your business profits, sales tax (GST/HST), and payroll taxes (if you have employees). Familiarizing yourself with federal and provincial tax requirements, filing deadlines, and record-keeping obligations is essential. With our taxation services, you’re guaranteed to stay compliant with all regulations. We consistently pinpoint tax-saving opportunities, empowering you to retain more of your hard-earned money.
Choose a Business Management System
Establishing a robust operations management system is crucial for the success of any business. It helps to get your business processes from start to end, from the time you get a lead to the time you receive payments from your customers.
Business management software
Invest in user-friendly software that streamlines your processes and saves you valuable time. There are a number of options on the market, all with their own “best UI/UX”. Feel free to visit them all. But at the core, the application that you choose should allow you to:
Track Income and Expenses
Your business software should enable, and streamline the process to record all business transactions, categorize them accurately, and generate custom reports to analyze your financial performance overtime.
Manage Invoices and Payments
You should be able to create and send invoices to customers electronically, accept online payments, manage outstanding receivables, and track expenses using the software you choose to manage your business.
Use Business Performance Reports when making Decisions
Prefer a software that lets you generate and download business reports. Your CFO can use these reports to generate periodic profit and loss statements, balance sheets, and cash flow statements for you. These reports provide valuable insights into your business health and help you make informed business decisions.
Maintain Accurate Records of small business in Canada
The importance of meticulous record-keeping simply cannot be overstated. Whether its inside your business software or outside of it, always develop a system for collecting and storing all your business receipts, invoices, bank statements, and other financial documents overtime. And don’t delete anything you think is old and “I probably won’t need it now”, simply archive it in Google Drive or OneDrive etc. If its a physical paper, scan and save it online. Having everything related to your business that you used at one point saved, no matter how unimportant or old it is, ensures you have the necessary documentation to substantiate your income and expenses for tax purposes.
Schedule Regular Reviews
Don’t let your finances become a burden on your brain as something to be done “later”. Instead, schedule regular reviews to analyze your financial reports and assess your progress. These reviews allow you to identify areas where spending can be optimized, adjust your pricing strategies if needed, and make any necessary course corrections to achieve your long-term financial goals.
These financial maintenance activities could be overwhelming when you are trying to meet client expectations, keep your staff happy and stay compliant with the government’s regulations. This overwhelm may lead to failures and most certainly leads to a halt in business progression. 21st century however enables us to get a virtual financial officer for our small businesses. People working in this industry for decades know what reports you would receive when from where, what are your payables at any certain date, how much will you get paid from your customers soon etc. Your CFO also highlights the areas you can make more money in and provide early-on warnings of any approaching bottlenecks your business may be heading towards.
At TCSI, every CFO works with volumes of financial data at a day-to-day basis. This team utilizes the same principles to help small businesses like yours move from a stage where they are surviving to a stage where they are thriving. With a list of businesses that we have already helped scale, let’s assist your idea to scale as well!
Want to get CFO consultation? Start Today with a Free Consultation Session by clicking the button below!
TLDR
Starting a small business in Canada is exciting, but the legal and financial sides of it can be confusing to say the least. This blog helps you:
- Pick the right business structure based on your risks and future vision.
- Get the registrations and permits you need to follow provincial and federal rules.
- Make a business plan to guide your business, get funding, and hire competent people.
- Get business insurance to protect your company from financial losses in case of accidents.
- Use software to manage your money effectively while you run the business operations.
What are the initial steps to set up a small business in Canada?
The first steps involve choosing a business structure, registering your business name, obtaining necessary permits and licenses, and setting up your business finances. Each province may have specific requirements, so it’s essential to research accordingly.
How do I register my business name in Canada?
Business name registration is typically done through the provincial government or the federal government, depending on the scope of your business operations. You’ll need to conduct a name search to ensure your desired name is available, then complete the registration process, which may involve filling out forms and paying a registration fee.
How should I manage my small business finances effectively?
Proper financial management is crucial for small business success. This includes opening a business bank account, keeping accurate records of income and expenses, budgeting for taxes, and understanding your tax obligations. Our team of experts can provide guidance on financial best practices and help you implement effective accounting systems.
What tax considerations should I be aware of when setting up a small business in Canada?
Taxation is a critical aspect of small business ownership. You’ll need to understand your obligations regarding income tax, sales tax (GST/HST), payroll taxes, and any applicable tax credits or deductions. Our experienced tax professionals can advise you on tax planning strategies to minimize your tax burden and ensure compliance with Canadian tax laws.
What licenses and permits are indispensable for operating a small business in Canada?
The regulatory framework mandates a spectrum of permits and licenses, contingent upon your business type and locale. From business licenses to zoning permits and specialized industry accreditations, our consultancy streamlines this intricate landscape, ensuring compliance and smooth operational commencement.
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