CHECKLIST FOR STARTING A NEW BUSINESS
PLEASE....... BEFORE you go "into business" go through these tips; it could save you a lot of grief and money.
(intended for persons in Canada; has relevance to others)
I have run a very successful business from home for many years. For a long time I did personal Income Tax returns
and even made picnic tables to sell (details at http://www.sticksite.com/picnic/). Now I
sell Diamond Willow sticks from home; see my home page at http://www.sticksite.com/.
- Many of the items below may not apply in your specific situation, but no doubt many will. This list will, hopefully, help you to remember to take care of the many things necessary to begin a new business. This check list assumes you will NOT be operating as a "Limited Company", or a "Corporation".
- Decide if your business will be a single - proprietorship or a partnership. You may need your accountant's advice on this one.
- Look into the dangers of present and impending competition.
- If your new business is going to be a partnership, draw up a very detailed partnership agreement, covering all the bases, including division of profits or losses and eventual dissolution of the partnership. Legal advice may be warranted. In my opinion, based on experience, "Partnership" is a dirty word. Partners change, situations change, disagreements get out of hand. Trust me on this one.
- For literature about starting a business, see your banker, your insurance agent, the FBDB, the Chamber of Commerce, Tourism, library, and call BDO Dunwoody Chartered Accountants (1-800-805-9544), asking for free booklets on this subject.
- Consider taking courses at a college, on management, marketing, accounting, etc.
NOTE THE WARNING NEAR THE BOTTOM OF THIS PAGE!
- Some people think that they qualify as "self-employed persons", when in fact, they are actually employees of another (company). If you are unsure, be safe and check out the situation with Canada Customs and Revenue Agency. If you proceed as being self-employed, and CCRA later decides you are an employee of someone else, you could have "mega problems".
- Check with your city/town about the needs for a Development Permit, Business License, and any restrictions on what you may and may not do. Check also with Consumer and Corporate Affairs.
- If you are going to rent business premises, get a written rental agreement. Be sure about any possible restrictions on your hours of operation.
- Pick a name for your business, which will describe to prospective customers what you do. A name like "AB Enterprises" tells absolutely nothing. Pick a couple of alternate names as well.
- Register your company name, in Alberta, with Alberta Registry. See your local Alberta Motor Association. This ensures nobody else will register the same name. It protects your name. If you want to search a company name in all of Canada, try "One Stop Search House Ltd." at (403) 426-1791 in Edmonton.
- Decide whether or not you must register for G.S.T. purposes. Call the GST people at 1- 800- 463-6737. If you do not have to register, you may prefer to do so anyway, so you can get back all the GST your business pays out.
- Consider business cards for low-cost, effective advertising.
- Consider a one-page "flyer-type" letter which the post office may deliver in bulk, at low cost; talk with the post office.
- Check with the telephone company about an ad in the Yellow Pages. The local cable TV channel may have cost-effective advertising available to you. The local newspaper may be prepared to print a "news" article about your new business.
- If you are going to hire others, get a well-trained person to look after your payroll. Payroll is not as simple as you might think and errors will come back to haunt you. Call CCRA's "Source Deductions" department at 1-800-667-6217 for an "employer number". If hiring several people, contact Alberta Health Care. In Grande Prairie, the Rite Operator, at 538-5121 will put you through, free. Also, see Labour Standards Branch for regulations.
- Set up a company bank account and get company cheques with cheque stubs or carbon copies of cheques.
- Get a deposit book with carbon copies. Make clear on each deposit slip, where the money came from. There is a danger that money which you take out of your personal account, to finance the business, may wind up as "revenue", with the result that you would pay income taxes on it.
- Discuss your plans with the Workers' Compensation Board. WCB may seem like a pain in the ..... but it can protect you.
- Read CCRA's Interpretation Bulletin IT-514, dated February 3, 1989, regarding "Work Space in Home Expenses" to decide if you are qualified to claim a portion of your home expenses (e.g. mortgage interest, utilities etc) as a business expense. If you qualify, keep all your utility bills etc. See your accountant for a worksheet which will list all the expenses you can claim, and help you calculate a "business percentage". Don't forget that if you do register for GST purposes, you can claim back the GST you pay on the business portion of home expenses too!
- Keep a list of all "capital expenditures". These are tools and equipment etc., which cost $200 or more. These are not "expenses" and you may claim Capital Cost Allowance (depreciation) on them.
Would this be a good time to Bookmark this website? Hit Control-D to do so.
- Decide on a "fiscal year-end" It should be Dec. 31. Check with CCRA if you feel that you "must" use some other date.
(Speaking of Income Tax, see my Tax Tips page.)
- See your accountant, and bring along a list of all your questions.
- Get invoice forms so you can make invoices for your customers and keep a good record for yourself. A rubber stamp with your name at the top will be fine.
- Set up some sort of file where you keep all invoices you pay for business purposes. On each, write the number of the cheque you wrote to pay it.
- If you are going to use your "personal" vehicle also for business purposes, keep a daily log of all business trips, keep track of odometer readings at start and end of your fiscal year, keep track of all expenses on the vehicle and get a value on the vehicle so you can claim Capital Cost Allowance on it.
- Remember that if your business loses money, you can deduct the loss from other income, on your personal income tax return. If, however, CCRA decides that your business has no "reasonable expectation of profit", they may disallow such losses.
- Keep all invoices. The rule of thumb, as to what you may deduct and what you may not deduct, is very simple: "every nickel you spend, in order to earn taxable income, is tax-deductible".
- As to taking money out of the business for yourself, do not call these amounts "wages". What you draw out is called "Drawings" and has no effect whatever, on your Profit or the amount of income tax you will pay. Do not deduct tax, CPP nor UI on cheques to yourself. As a self-employed person, you are exempt from U.I. and your tax and CPP will be calculated on your income tax return.
- Consider hiring family members to reduce the tax burden, but don't forget the downside: paperwork; T4 slips etc.
- Keep in mind that you will have to pay tax on your profit, and also Canada Pension Plan contributions. Don't be caught short when tax time rolls around. As a self-employed person, you will pay double the CPP rate that you pay as an employee. If you are an employee, the employer pays half and you pay half.
- After you have filed your first tax return showing business income, and if there was signficant income tax/cpp to pay, you may be advised by CCRA that you should make instalment payments every three months. If you are so advised, do it. If you do not, you will be charged interest on "delinquent instalments".
- If you will be selling a product of any kind, and you will use some of that product yourself, keep track of the cost of all such product used. This will be needed to determine your profit/loss.
- CCRA came out with a new form (T2124) in late 1994, for businesses to report their revenues, expenses, profit, "workspace - in - the - home expenses, Capital Cost Allowance etc. This should make it possible for most of us to prepare our own annual financial statement and save accounting fees. Balance sheets are no longer needed so "double entry" accounting is not required. This could save you big bucks.
- More information is available at http://www.canadaone.com which is an 'online' magazine.
- Contact CCRA and request their booklet "Guide for Canadian Small Businesses." You can also visit their website at
- You might take advantage of CCRA's same-day service for new business registration.
- Consider setting up a website to promote your business; I did and it works. See my "Diamond Willow Sticks" page at
http://www.sticksite.com/ or at
http://www.diamondwillowsticks.com/. If you need a lot of help making a website, my notes on that live here:
If you do use a computer extensively, don't forget BACKING UP all your data. Also, I strongly suggest
having a back-up computer; computers have been known to "do down." Forget the "FREE" web-hosting services;
they tend to disappear with your website.
- If you are going to use in/for your business, equipment which you have alread owned for some time, you can "contribute" these items to the business and take/claim Depreciation ("Capital Cost Allowance" or, for short: "C.C.A.") on them. If you are going to use any asset 90% or more for business purposes and 10% or less for personal purposes, you can claim it as 100% business use. If an asset is used more than 10% for personal purposes, you need to determine a percentage and then reduce the CCA claim by that percentage.
- See this site for help:
NOW that WARNING:
In my career as an Income Tax accountant with many hundreds of clients, I "Saw it All." So very, very frequently, a client who was otherwise a reasonably intelligent person would, with great excitement explain to me that (s)he had gone "into business" and was on the verge of becoming a very wealthy person.
In other words, this unfortunate client had been brainwashed by one of the many, many scams, also known as "multi-level marketing organizations."
Every time I heard that story, I'd cringe because I'd heard it before and the end result was always the same. They lost their money, their time, and sometimes friends as well.
They would, typically, be so very, very happy and excited, and even wanted to involve me in the scam. They were so brainwashed that sometimes their enthusiasm would come close to infecting me. It never did though; I know better.
I got an email from somebody and it went like this:
"A friend of mine got into multi level marketing.
She and her husband got into "Quixtar" a few years ago and man, did they get into it huge. I began really thinking this is a cult. All she reads or listens to is Quixtar motivational stuff. The only place they go out of town is to Quixtar functions. All vacation days are used for Quixtar. She almost ended our friendship because I nicely refused to buy her overpriced items (after checking thoroughly to see if ANY of it was reasonable so I could "support" her). All she talks about is Quixtar. She and her husband will try to recruit at fast food restaurants and in a mall food court. Once in awhile they go through million dollar show-homes so they can keep their dreams big. Their whole LIVES are Quixtar. It's truly frightening. I've tried to talk to her about it, but if I push too hard, I lose a friend. So I keep my mouth shut and nod along about all the wonderful things she's learning about never giving up, always having a positive attitude, how the business energizes her, how spiritual the whole thing is. PUKE!!!
Today, I did a google on quixtar+cult and man, oh man!! It's AMWAY.
I could have read for hours. About how most of the money is made by those selling the books and tapes and tickets to the seminars!! Most people spend WAY more on AMWAY than they'll ever make. Freaking brainwashing.
This link was brilliant:
HAVE YOU got a horror story involving one of these scams? I'd love to hear about it. Please tell me if I may print it here; I'll NOT use your name unless you want me to.