3 reasons to Why You Should Start THAT Business in Canada
Whether you’re considering a side gig, a full-time venture, or even a fully incorporated business, this is a sign to take the plunge. In this article, we’ll this discuss the 3 reasons on why you should start a business.
As accountants, we usually tend to talk about the tax and financial benefits, but the non-monetary aspect can also make entrepreneurship an exciting journey.
If you’re grappling with what business to start, just remember, starting a business doesn’t have to be complicated. You don’t need a groundbreaking invention that will revolutionize the toothbrush industry; you just need to be able provide value.
What’s value? If you can provide a product or service that saves time, produces money, or reduces effort, you can start a business.
Even if you’re currently an employee, you’re essentially in business for yourself because your selling your time and specialized labor to your employer, in exchange for a wage. But there’s so many reasons start a business, so let’s dive in!
Reason #1: No Income Ceiling
One of the most liberating aspects of running a business is no income ceiling.
Unlike traditional employment, where your income is often limited by your salary, or office politics, entrepreneurship can offer limitless earning potential. Your business’s profitability can grow with each passing month, day, and year, generating more and more income.
You can even grow by hiring others to work for you, effectively leveraging their time to make your business more efficient.
This could be a path to financial freedom.
But, you don’t build a massive company; you could build a lifestyle business that allows you to work less while earning more is entirely attainable.
For example, when I started my business, I was working about 15 to 20 hours a week, earning a lot more than I did at my last job, where sometimes I worked 40 hours and upwards of 55 hours during the busy season.
Your income potential in a business is totally up to you. It just depends on how much work you want to put into it.
Reason #2: Equity and Ownership
The second reason to start a business is equity. As an employee, you only get the salary or wages you receive from your employer. You don’t hold any ownership or equity in the business you work for; it belongs entirely to the owner or the shareholders.
When you leave that business that you’re working for, you may get some small token of appreciation, but once you leave, there’s nothing you can take.
In contrast, being a business owner means you build something that belongs to you, and that something can be passed onto future generations or even sold for a substantial amount.
Your business’s value grows with its success, clients, products, and services you’ve provided.
Reason #3: Tax Benefits
The third reason to start a business is taxes, more specifically, tax treatment. Business income is subject to different tax treatment than employment income, offering several advantages.
Firstly, timing: employees have taxes deducted from every paycheck, whereas businesses pay taxes when they file their corporate or personal tax returns at the end of their year end. You can choose when to pay your taxes.
Secondly, businesses are taxed on their net income (which is sales minus expenses), which opens the door to significant tax deductions.
Eligible business expenses, defined by the CRA as “anything incurred to earn revenue”, allows you to write off expenses like gas, insurance, mortgage interest, and your phone bills.
This can translate to substantial tax savings.
Let’s look at an example to clearly illustrate this.
In this example, we are in the tech industry. We are a software developer who’s earning about $180,000.
So as an employee, he’s going to get taxed evenly throughout the year off of every single paycheck. He’s going to end up paying about $56,000 in income taxes that year.
As a business owner, he can deduct some expenses. So let’s say his expenses are about $50,000 for the year. He’ll only be taxed on $180,000 minus the $50,000, so he’ll be taxed on $130,000.
So when he’s a business owner, his tax bill will only be $37,000. That’s a difference of $19,000 he’ll save in one year. Over five years, that’s a difference of almost $100,000. Think about what you can do with that amount of money.
He can save even more if he was incorporated, but that’s a subject for another article.
There is absolutely nothing wrong with being an employee. Being an employee has so many awesome perks. Like it’s 9 to 5, and after 5pm, you can shut your mind off and do something enjoyable.
A business at the beginning can be 24/7 and you’ll be thinking/worrying about it all the time. Moreover, there’s always that overbearing thought that it’s not going to work out. So it’s not for everyone, but owning a business can be super fun and rewarding.
This is one path to financial freedom, albeit one that depends on you and what you’re willing to do and sacrifice for it. But hopefully, this article has been helpful in pushing you towards starting that dream.
FREE Download: What You Need To Know When Starting A Business In Canada
1 in 5 small businesses in Canada will fail within three years of starting. That’s why it’s important to start out on the right foot. We want to help new (and existing) business owners succeed, so that’s why we wrote an eBook on the accounting basics that ALL Canadian business need to know.
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