5 Essential Steps to Take Before Starting Your Business In Canada
Starting a new business in Canada is an exciting venture, but it’s crucial to lay the right foundation to ensure long-term success. Before you dive into your entrepreneurial journey, let’s go through five things to consider when starting a business. In this guide, we’ll break down each step, providing examples and explanations to help new Canadian business owners get started on the right foot.
Here are the 5 essential steps to take before starting a business in Canada:
- Choose the correct business structure
- Register Business Number with CRA
- Get a Business Bank Account and Visa Card
- Apply for the necessary
- Get business insurance & WorkSafe insurance
Choose the Correct Business Structure: Sole Proprietorship vs. Incorporation
One of the first and most critical decisions you’ll make when starting your business is determining its legal structure. In Canada, the two primary options are a sole proprietorship and incorporation.
Check out this article to understand which business structure is right for you.
Sole Proprietorship: This is the simplest and most common business structure. As a sole proprietor, you are the sole owner of your business, and you report business income and losses on your personal tax return. It’s usually a good choice for small, one-person businesses or those with minimal risk.
Incorporation: Incorporating your business means creating a separate legal entity. This structure offers liability protection, potential tax advantages, and the ability to raise capital through the sale of shares. However, it involves more paperwork and compliance requirements.
Example: Imagine you want to start a graphic design business from your home. As a sole proprietor, you’d simply start offering your services. If, in the future, you plan to expand and hire employees, incorporating might become more appealing to protect your personal assets and access investment opportunities.
It’s always a good ideas to consulting with a lawyer or an accountant to determine which structure aligns best with your business goals, ensuring you’re making an informed decision.
Register Business Number with CRA
Once you’ve chosen your business structure, you’ll need to register for a nine digit Business Number (BN) with the Canada Revenue Agency (CRA). This will allows you to open a business bank account.
During this registration process, you can also opt to register for a Goods and Services Tax (GST) number if your projected annual revenue exceeds a certain threshold. Another key thing to note is that when you hit $30,000 in annual revenue, you must register for GST.
If you want to learn more about GST, click here.
Additionally, if you plan to have employees, you should register for a payroll account with the CRA.
Get a Business Bank Account and Visa Card
Separating your personal finances from your business finances is a fundamental step in ensuring financial clarity and protecting your assets. Go open a dedicated business bank account and consider obtaining a business credit card.
Example: Suppose you’re launching a restaurant in a high traffic location. You ‘ll have a large number of customers each day, with each customer making a separate transaction to pay for their meal.
Having a separate bank account for your business transactions makes it easier to track income and expenses related to your restaurant. It also simplifies tax reporting, ensuring that your business finances remain distinct from your personal finances.
This way you’ll never get your transactions messed up because you have one card/one account.
Apply for a Business License (if Applicable)
Depending on your business type and location, you may need to obtain a business license. This is especially true if you plan to operate from a commercial location separate from your home.
Example: If you’re opening a bakery in Downtown Vancouver, you’ll need a municipal business license, so it’s essential to understand the specific regulations and pay whatever licensing fees is required.
Early Reminder: you can write off the business license.
Get Business Insurance & WorkSafe Insurance
Protecting your business from unforeseen events and liabilities is essential.
Example: Suppose you’re launching a landscaping company. You should consider general liability insurance to cover potential accidents or mishaps on your client properties
Additionally, if you plan to hire employees, you’ll need to register for WorkSafe insurance (also known as workers’ compensation). This insurance provides coverage in case of workplace injuries and is mandatory in most Canadian provinces.
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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