4 minute read
Thinking of Starting a New Business?
Elaine Hughesman
So you’ve decided to take the plunge and start your own business! Now what?
As with most things in life, some upfront planning will save you a lot of headaches down the road. Here are some factors to consider when starting your own business.
Before You Start
A business plan and cash-flow budget are key components to starting a business.
Make sure to put pen to paper or fingers to keys and consider how you’re going to get clients in the door and retain those clients, retain staff (a vital component these days), and pay your bills every month.
It’s also vitally important to prepare a cash-flow budget. It will tell you how much money you need to bring in each month to pay your expenses and yourself. That process will also help you determine if you require financing to get going. If you do require financing, it can sometimes be a lengthy process so it’s best to get started well in advance of when you intend to open the business.
Next, decide on a name and reserve it through BC Registries. Decide on whether your business will be structured as a proprietorship, partnership, or corporation.
Deciding between a proprietorship or partnership is easy—do you have a business partner(s) or not? That is the distinction.
Deciding regarding a corporation is trickier. You should discuss with your accountant and legal professional what makes sense for you. The good news is that you can always convert from a proprietorship or partnership to a corporation down the road.
Licences, Insurance, and Sales Tax
When starting a business, you will generally need to apply for a business licence through the municipalities in which you’ll be located. You will also need to determine if the products or services you’re selling require additional licences or permits, i.e., liquor, tobacco, food, etc.— or to operate under specific government guidelines.
It’s also very important to obtain business insurance to protect you and your business. Talk to an insurance agent to find out which types of insurance are applicable to your new business; sometimes there can be many.
Next up is to think about sales taxes. Generally, you have to register for GST/HST if your sales reach $30,000 annually. You can also voluntarily register for GST/ HST even before your sales reach $30,000. The benefit to registering early is that you can claim back the GST/HST paid on any of your business expenses. That can be advantageous for businesses that have significant start-up costs.
Provincial Sales Tax (PST) is a bit trickier. Generally, if you’re selling products in BC (and some services, including legal services), you need to register for and charge 7 per cent PST. If you run a homebased business and your sales are
You’re going to be busy starting your new business and making sure it’s a success. Do yourself a favour and hire a bookkeeper from the get-go.
less than $10,000 annually, you are exempt from PST.
Payroll
If you’ll be hiring employees or simply paying yourself wages, you will need to register for a payroll account with the Canada Revenue Agency (CRA). I generally recommend that businessowners hire a bookkeeper or a payroll company to process the payroll. They’re the experts and will ensure all the proper filings are handled. You will also need to register for WorkSafeBC (WCB). If your payroll exceeds $500,000, you will need to register for Employer Health Tax (EHT).
Taxes and Recordkeeping
You’re going to be busy starting your new business and making sure it’s a success. Do yourself a favour and hire a bookkeeper from the get-go. A bookkeeper will track all the income and expenses of the business; will ensure sales taxes, payroll taxes, etc., are filed on time; and will help you to keep your recordkeeping organized. It’s also advisable to open up a separate bank account for the business.
Get in the habit of keeping all receipts for business-related expenses. And if you plan on driving a vehicle for business purposes, keep a vehicle log to track businessrelated kilometres driven.
You should also talk to your accountant about how best to pay yourself (wages vs. dividends) and to understand the tax implications related to your business.
Best of luck in your new venture. Remember to surround yourself with professionals who can help to set you up for success. Don’t try to do it all yourself! Elaine Hughesman, CPA, CA, is a partner at Hughesman Morris Liversedge, CPAs in Sidney, BC. She is a general practitioner working in tax, accounting, and audit.
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