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hey guys joe here from avalon accounting and today i'm talking about starting your small business in canada so we get reach outs probably every day a few a day sometimes about people starting their business and they usually have the same questions which is is uh um you know is a normal thing i think everyone has similar questions when they're starting their business so that's why i wrote the starting your business guide which i have on our website but i thought i'd put this in video format as well because as my brother says um i don't read so uh that's for that's what this video is all about we're gonna cover all the big questions that we get uh in starting your business and try to make it more of a step-by-step on all the things you should consider when you're starting your business in canada so all that and nothing else coming right up [Music] all right so the number one thing that i like to lead with when we're talking when i'm talking to a potential new business owner is to begin with the end in mind and what i mean by this is to have an end point that you're aiming for and the reason why it's so important is to uh it really will dictate the decisions you make early on in your business whether you're going to be a sole proprietor which will cover corporation um or you know what it kind of looks like in your first year and what your your big priorities are so that's what i encourage people to do is to really sit down and think about okay what is the at least the first phase of my business what does that look like where am i going to be you know pretty happy and content with the way my business is so not really um denying that as as a as an outcome kind of open up your mind to potential uh future uh success and uh you'll know if you've followed me at all that i kind of define a successful business as being um in three things a thriving business it's gonna give give you money so it's good to define how much money you wanna make from this business um it's gonna give you time so uh i think for most people you don't want to be working 80 hours a week i know maybe some people like like doing that but i like having some other things on the side enjoying my life with my family and all those kinds of things so what sort of time uh commitment uh will you be looking at when your business is sort of complete and the last thing is purpose i think you know all the time and money uh you know if you're sitting on a beach somewhere you have all this time and you've got all this money i think uh that will run pretty thin pretty soon i think purpose is where you kind of get filled up and if you can do things for charity or your community or even just helping your your clients and your customers to a deeper extent um is going to help kind of give you fulfillment with your business so i would really suggest the first place you start is to figure out what it looks like when it's done the first real question we get too is like i'm starting this business like what do i need to do for registrations and all these things so what we start kind of start with is you know what's the format of business that you want to start is it going to be a sole proprietorship or a corporation or even a partnership in some circumstances for this video i'll just cover the sole proprietorship and incorporation we do have a full video on whether you should incorporate your business which i'll link on one of the sides here but in in a short format um you're looking at i think if you're going to be incorporating i think you're going to be looking for you know if you're really trying to scale your business past you know 250 000 in revenue that's your goal so going back to beginning with the end in mind what sort of revenue targets do you have if you're looking at a business that is going to be sellable one day you want to sell this business or you would have some potential value to an outside buyer then it won't be a mistake to incorporate your business earlier that's not going to be an issue if you're on the fence or you're expecting some losses in the first couple years of your business maybe you're going to start your business on the side and you have a full-time job somewhere else not a not a big rush to incorporate because you're going to be able to use those losses against your personal income which is really handy and then you can always incorporate later so like i said check out the video for the full answer to this question i don't want to bog down with 10 minutes of explaining it but check that out and it'll answer a lot of your questions on whether you should incorporate so besides incorporating i think there's a number of things that we need to do to register for different programs in uh in the country so there's tax things and just legal things that we need to do when we're starting our business and this is going to vary a little bit by the province that you're in but generally we'd be looking at a few things so number one is a name registration so whether you're incorporated or not incorporated you want a business name and you're going to have to check uh local or provincial registries to see if the name is available you can also do this federally if you plan to grow a business that's going to operate across the country you'll want to look at a federal incorporation so that your name is reserved across the country but for many small business owners they're operating locally they just would take a name search within their province and that can be done just on a government website you pay usually paid 25 dollars to register the name and you do a bit of a search to see if it's registered to somebody else in a similar industry but you'll definitely want to register your name so no one else takes it after you build up all this uh goodwill with it the other thing you're going to want to register for is a municipal business license so this is again going to change by the municipality that you're in but it's usually like a hundred dollars and you are supposed to hang it on your wall somewhere even if you have a home office so that's really important penalties can be really stiff for business license uh infractions um but uh it's pretty easy to go register and pay the hundred bucks and um hang something on your wall and that so uh well worth uh going to register for a business license at your municipality the next thing you're going to want to do is register for a business number with the cra so if you're a sole proprietor you don't have to do this right away although we often recommend that sole proprietors or any business register for gst as soon as they can especially early on in your business because you will be spending money and you can get some of that gst money back so really i think people avoid until they hit that 30 000 mark but that's only when you have to register if you if you register early and you buy a computer you might get some money back so really important to just at least take a look at that and if you are incorporated you should get a cra business number right away um it usually starts with a seven or eight and it's nine digits long and then there's a suffix on it which is either rc0001 or rt zero zero zero one first one is for the the corporation second one is for gst and then there's payroll accounts rp zero zero zero one so uh really important to get those registered uh as you need them if you're incorporating that should come along with the incorporation if you're not incorporated then take a look at gst i think it's really worthwhile to register early for that so next one if you're going to have employees there's a couple things you need to do so number one is get that program account for your business number which is the rp0001 and you can do that just by calling up cra on their business line just google that or you can sometimes do that online as well through through business registry online through cra so that's another thing you'll have to register for if you're gonna be employing people and you'll also want to get workers compensation coverage so that is a mandatory requirement if you have employees you just have to look it's usually run provincially so you look at your provincial workers compensation provider and register and pay it's not usually too expensive so it's not going to break the bank but it is a requirement for most of us that have employees so the next thing you're going to want to register for is insurance and this isn't necessarily quite registration but really important thing to do is to get business liability insurance some general liability insurance for your business speak to your local insurance provider but i like to put it in this spot because i think it's overlooked often as maybe like a nice to have but really it's not it is a requirement as far as i'm concerned for every business to insure themselves because you do open yourself up to risk um and you don't want to be sacrificing uh personal assets or or your future just because uh you had an angry customer or you made a mistake or something like that business kind of opens you up to that so make sure you get some insurance for your business all right so the next big question we get is do i need to register for sales tax or what sales taxes do i need to register for so i kind of categorize this into a few areas so there's gst and hst there's provincial sales tax in certain provinces and then people often ask about u.s sales tax and whether they should register for that if they're going to be selling maybe for e-commerce into the u.s so i'll start with the easy one so gst and hst i think it's a no-brainer if you're gonna if you've begun with the end in mind and you want to be a successful business just go ahead and register for gst and hst just set yourself up for the future to charge gst hst and get some money back as well for the the gst that you spend i think it's for most people that's just going to be a no-brainer unless you have some sort of exemption i think it's really worthwhile to register for those immediately so next is pst or qst or rst depending on the probably place that you are and this would cover for bc has pst saskatchewan has pst manitoba has rst which is a retail sales tax and quebec has qst which is quebec sales tax so um it depends on the product that use product or service that you sell and the province that you're in this isn't going to be a detailed look at each individual province because i think i'll get a lot of two outs here but just know that this is something out there you do have to kind of look for yourself whether um whether uh pst your rst or qst applies to you and then just charge ingly register on the provincial site and remit when they tell you to remit if you do have questions about that please just post them in the comments below i usually have some links and we found at least in bc the psc people to be super helpful when you call in they don't try to make you pay when you don't owe they give you lots of clarity so that's really helpful all right lastly i'm going to talk about u.s sales tax just briefly because this could be its own video and maybe i'll do that in the future although it's right for um for some issues uh so some legal issues for me talking about it because there's the rules and then there's what people actually do and i think if there's anything i've learned from the world of u.s sales tax really challenging for small businesses to be compliant in this area because it would just simply break the bank every state has different rules and uh it when they say the united states of america they really mean these are separate states that are united at a federal level but they all have their own rules and are kind of ready for the collapse of the the union at any time it seems like so just be aware that this is a thing um it's really challenging for us small business owners to be fully compliant in this area because there's so many rules but if you are worried about it it is worthwhile engaging with a professional someone that knows cross-border tax and and your sales tax requirements in the u.s and then there's programs like avalara and there's a few others where you you pay and um based on if your e-commerce site or something on the location of your customer you'll you'll charge the right kind of sales tax and be able to file those those returns in the area that your customer is so pretty challenging area but i think most people just can't afford to be compliant unfortunately all right the next big question we get is how do i pay myself so this is a little bit dependent oh not even a little bit a lot dependent on what kind of structure you started out with so whether you're a sole proprietor or you're a corporation so i will start with sole proprietor because it's super simple i'll be really quick whatever you earn within your sole proprietorship is your personal income so there's no real separation there so you can take money out of the business anytime you want just by a transfer you'll be taxed regardless on any income that you produce as a sole proprietorship on your personal tax return so pretty simple i think more philosophically what you would want to do is kind of see if you can keep a separate business bank account pay yourself a steady income throughout the year as as you have the income to do so i'm just keep things kind of steady on that side so you can manage your personal expenses for corporations it's a little more complex although we tend to tell people you know that there there's only really two ways to pay yourself and that is true i think people like to kind of finagle and see how they can pull out money from their business without paying any tax on it and uh i just like to say well there's you know there's no real way to do that except you know cheating so um there's only two ways to pull out money so number one is salary and number two is dividend so i do a whole video on that as well and what the difference is so i will link that one up here somewhere as well so you can go check that out but salary versus dividends is probably the biggest question that we get overall in the business and has definitely been a hot topic um each province is going to run a little bit differently on what's better for tax purposes but just know that if you're paying yourself a salary administration's a little higher because you have to run a payroll system get a payroll account remit taxes if you have other employees that maybe is not such an issue for you but definitely if you're the only person working for your company and you're incorporated being paying yourself a salary or through payroll is going to be an administrative burden on the dividend side there's a lot of misconceptions around you know not paying tax on dividends or you know having a threshold of 60 000 or all this all these things um i want to do a separate video about that just to clear the air on this area because there's a lot of confusion but really at the end of the day when you pay yourself a dividend you're paying about the same amount of tax as you would paying yourself a salary you just have to trust me on that for now um but in the future i'll do a full video on that but the the other flip side or the other like component to that is if you're paying yourself a salary you're going to be paying into cpp so whether you consider that a tax or savings for savings really up to you and is again philosophical but uh just know that on the tax side on the strict tax side it's about equal between the two and i think in bc this year we sort of calculated that it was a little bit better to pay yourself a salary you know not withstanding cpp uh being uh paid kind of a payroll tax so that's that's those uh the summary of those two types of payments um and i'm sure i'll get lots of comments below and please comment if you have any questions but do check out the other video because it goes into more depth on that just know that there's two ways number six question that we get is what can i expense in my business nobody wants to pay more tax than they need to and the one way to get your tax bill down is to get your expenses up and get your net income lower because you get taxed on your net income so people are often asking what can i write off what can i write off because i want to get that income down and i will i usually start with this is that you need to just focus on your business first spend the money that you need to make because you don't want to get in a situation where you're spending a dollar to save 50 cents in tax like we do see people try to get their income as low as possible so they pay no taxes that's not really the point of running a business you want to be profitable and have a tax bill in a sense because it means you're being profitable and you get taxed on profit and that's just the way things work so i wouldn't increase your expenses uh uh manufacture expenses so that you don't have to pay any tax just be profitable and things will work out that said you definitely want to if you have expenses in your business get the full deductions that are available to you so expenses kind of work like this in a business and i get lots of questions on you know individual can i expense this can i expense that and you know i can answer those questions usually with a little context on the business but really what you're thinking about when you you are expensing something within the business is am i spending this money to make money like am i spending this money for my business so that i can earn more income in the future and if the answer is yes it's usually a deductible expense if the answer is no it's probably personal in nature and is not deductible there are a few exceptions to that and i do a video on what can i expense in my video what can i expense in my business and i'll link that one up here too so go check out that video explains in a little more detail but just know you can expense things that you should be able to expense i think that's the probably the the kohl's notes of it don't worry too much about those i mean there's home office expenses and those things that i cover in that video things that you don't want to miss out on but in general don't worry about it spend the money that you need to spend to run your business and those will be deductible and hopefully you'll be profitable all right the next big question we get is how do i track my income and expenses like how do i make it all kind of come together and that's really bookkeeping so uh we do have some courses on that i'll link those below on how to do your own bookkeeping in xero but just know that there's a few ways to approach this and depending on your size and your again what your goals are for the future it may be worthwhile investing in some software or maybe not so we do have a free template on bookkeeping and that can work for sole proprietors or or corporations no issue on either side and i'll link that one as well to the template but in general we want to just make sure that number one we separate our business from our personal life so you want to have a separate business bank account uh and a separate business credit card and that credit card most businesses can't get credit um so you just use another personal card that you use strictly for business and that's totally fine you can do it that way um just keep it separate so that you have a nice clean data set when you go to do your bookkeeping or your bookkeeper is working on your stuff so that's the number one number one tip for for um keeping those things organized uh next is you know if you're gonna look at software just i like to build up to software unless you really know what you're going out there to do start simply start with our free template or something like that see what your needs are and as you have more needs you're like maybe you're invoicing you want your invoices to look nicer and to go straight into your accounting software so that you have revenue and then it's paid and you know what your accounts receivable are who owes you money at any given time then you'll start to see that need and you can say okay this is going to save me enough time to actually justify the cost of this software so we use xero and we make no qualms about that we love xero but you know quickbooks and that works works great as well we just love xero because it seems to be very user friendly and does all the things we want it to do as accountants but there's other great options out there too and the others are you know whether you hire a bookkeeper to do your bookkeeping or whether you do it yourself so again it really depends on the growth of your business at any given time what your future goals are and what it what what you can do personally what you want to learn about and uh you know who you are as a person and so i like to say like know yourself first are you the type of person that likes to learn this stuff and then will you follow through and actually get it done because the last thing you want is not being able to file your gst returns not being able to file your corporate tax returns or personal tax returns facing late penalties when you should have just hired somebody in the first place but if you have the wherewithal i really encourage business owners to learn the bookkeeping if they can because it teaches you so much about the cash flows of your business um you know what you need to do to follow up and as you delegate those tasks as you grow you'll really understand how it all fits together and why it's important so that's the the quick rundown of how you track your expenses and your revenue um it really depends on a lot of things but uh do check out our template if you uh want to do that for simple and really simply and for free all right so the next one is more of i guess kind of a cautionary uh section number eight is uh the top pitfalls to avoid in your first year of business or your first couple years of business so i'm going to run through those one by one and hopefully get some value out of that i do like to kind of go through this conversation when people are starting their business because i think these things with a little bit of planning can be avoided and if there's things that we can avoid simply in our first year of business year or two of business um we definitely want to do that so i mentioned it before and i i should mention i need to get t-shirts on this but get a super separate business bank account and credit card that is going to save you so much time and energy i won't say any more right now just go ahead and do that number two is don't try to do it all yourself get some help from people find where your weaknesses whether it's marketing or sales or you know some operations of your business maybe admin uh maybe bookkeeping and accounting that tends to be one of the first things that people hire out but know yourself and try not to do it all yourself find you may have to invest early on which i know is scary but getting some help early on in your business can be really helpful and save you from burnout number three pitfall is getting distracted by opportunity so we we see this a lot as well as once you start your business you get all kinds of people coming to you you do a good job on this oh i bet you do a good job on that so what happens is that you start to take on a lot of different disparate things and it can be really stretching really challenging um so i would argue that you know when you're start beginning with the end in mind that you have sort of a uh something you can go back to for what services you provide um where you're gonna be most successful what you do really well and stick to that and try not to get distracted uh with all the opportunities that are coming your way which is exciting but also can be super distracting and take you away from your ultimate goal which is to run that thriving business and have some time and money and purpose uh for yourself all right so number four is ignoring your salary so we see this too um you know you think you're running a really successful business but you're making twenty thousand dollars a year or something like that when you could just go out and get a job for 80. like that's one of the issues that we have when we're trying to decipher how successful a business is being financially is that we need to plug in the owners market salary and see where net income comes out after that um so it can be challenging because you say oh you know i made 60 000 last year and lo and behold they haven't paid the owner hasn't paid themselves a salary so don't ignore your salary i know early on in business it can be challenging to pay yourself because you want to reinvest and reinvest and reinvest that that money back into your business but at the same time you don't want to fully ignore that there is this big gaping hole of labor that is going into your business that is unaccounted for so just don't ignore it for too long make sure it's in the back of your mind kind of niggling at you that you deserve to get paid you are not a slave to your business and that you should be paid not only a market salary but also a return on your investment for starting this business in the first place all right and number five is right back to the beginning so not knowing the end game is a big pitfall for new business owners i think you know you just run out of the gates and start you know running that marathon and you don't know where the finish line is like you're just going up this street down that street up that hill down that hill and really what you need to be doing early on in your business is understanding where the finish line is so that you can navigate your way to it and it's so important that i'm saying it twice again you really want to know what the end game of your business is and and make sure that you're moving towards that end not in some random direction that you know other people are drawing you to are there any other pitfalls that you've maybe fallen into or you know about or you've been warned against post those in the comments below as well i'd love to hear some other pitfalls in early part of your business and we don't really get a question on this but i like to really put the bug in your ear is to protect your business's number one asset and that number one asset is you so the business would be nowhere is nothing without its business owner and you need to protect yourself from burnout and all the distractions and all those things so really important to take care of yourself while you're running your business um and take the extra time to exercise and eat well and sleep well i know it's really hard especially for in the first part of your business but just know that if you are kind of going off the rails with some of this stuff that they're that it's not going to be serving you in the long run you need to kind of bring yourself back every once in a while to health and energy and all of that protect yourself don't be afraid to take a little break if you even if you're gonna disappoint some people really important to take care of yourself because there will be no business without you so really keep that in mind and that's it so yeah that's my list of uh all the big questions that we get some questions we don't get um but i like to put the bug in your ear um and just let me know is there any other questions that you have about starting your business here in canada i imagine there's lots of questions about where to get financing how to get money all of those things and i'd love to hear those comments can do some follow-up videos on starting your business in canada and if you like this video do us a favor and hit that like button and if you like content like this if you're a canadian small business owner please hit the subscribe button and then uh get involved in the channel we'll do lots more of these videos and really enjoy uh the comments we get so um please hit that subscribe and join our community so that's it for today we'll see you on the next video and i hope you have a good one [Music] cheers you