Entrepreneurship 101: Mechanics of Starting a Business

CIBC Veni Iozzo, Vice President Steven White, Senior Director Small Business Banking December 2007

Agenda

Starting a business – What you need to know

Ownership Structures

Business Plan: Your Roadmap to Success

Financing your Business

Why a Business Fails

References

Starting a Business – What You Need to Know

Research your market

Consider your ownership structure

Choose a business name

Hire Professionals

Register Your Business

Consider municipal, provincial and federal business requirements

Understand employer

responsibilities

Prepare a business plan

Arrange Financing

Network, network, network!

Ownership Structures – Determine What is Right for Your Business

Deciding on a business structure that is right for you is an important decision for your business. The form of ownership you select will depend on what your future business plans are.

Sole Proprietors:

Unlimited personal liability

Fully responsible for the debts and obligations of their business

Partnerships:

An agreement between two or more persons often protected by a partnership agreement

Profits are shared according to their agreement

There are two types of partnership structures

General Partnerships

Limited Partnership

Corporations:

One or more people can form a private corporation.

Personal liability of the owners/shareholders is limited.

Business Bank Account

You have decided your business ownership structure and your ready to open our business account – here is what is generally required:

For any business:

Any person to sign on the account is required to bring two pieces of original identification, including one with photo

Sole Proprietors:

If using a business name – business name registration

Partnerships:

Partnership registration or partnership agreement

Corporations:

Original articles of incorporation or certificate of incorporation

Recent filing with incorporating jurisdiction listing your directors

Trade name registration, if applicable

Business Plan – Your Roadmap to Success

Whether you are starting a new business or running an established one, a good business plan helps set you on the road to financial success. By mapping out your goals and strategies, you’ll get a clearer picture of what your business really needs.

Business Profile: This introduction to your business plan provides important information about your company’s business structure, key principals, professional advisors, and financial history.

Business Plan:

Market Analysis

Business Assessment

Objectives, Strategies and Plans

Business Plan – cont’d

Financial Plan

Your financial plan will include details on the following:

It is important for your plan to be realistic and reviewed regularly – make changes whenever necessary.

Balance Sheet

Income Statement

Cash flow forecast

Personal Financial Statement

How do you finance your business?

Equity

Debt

There are two main ways to finance your business

Financing your Business Equity Financing Can be obtained through savings or investors. Investors typically receive an ownership interest in your company in return for their investment

Start up equity financing is typically sourced through yourself and people you know:

Personal savings

Friends or relatives

Government

“ Angel” or informal investors

Why invest your Money in the Business ?

Least costly source of funds

You are more likely to get a loan with adequate equity in your business

A business that has adequate equity is more likely to succeed

Financing your Business There are a number of ways to finance a business. The lender will evaluate your ability to borrow based on strength of your business plan, management capabilities, financing, your past personal credit history and collateral available to secure the loan. New business owners (in business less than 2 years) typically require collateral such as mortgages or cash/investments.

Line of Credit – used to cover short term expenses like supplies, payroll and rent.

Credit Cards – to cover and track small expenses or everyday business expenses.

Suppliers’ Credit – sometimes a very cheap source of financing, do not overlook the value of this source.

Business Term Loan – used to purchase long term assets required to operate your business.

Leasing – used to obtain assets to run your business, may provide more flexible options than traditional loans.

Government Programs – there are many government programs to support Small Business. Investigate all options.

Sources of Debt Financing

Canada Small Business Financing (CSBF) Program – Canada-Ontario Business Service Centre

NRC Industrial Research Assistance Program (NRC-IRAP) – Canada-Ontario Business Service Centre

NORTHSTAR Trade Finance Inc. – Canada-Ontario Business Service Centre

Co-Vision - Start-up Financing Solution – Canada-Ontario Business Service Centre

Summer Company – Canada-Ontario Business Service Centre

Financing for Starting a Business – Business Development Bank of Canada

Growth Capital for Aboriginal Business – Canada-Ontario Business Service Centre

Funding Sources and Programs (examples)

What is the Bank Looking For?

The 5 C’s:

Character: You must be trustworthy and have a strong credit history (maintain a strong credit history personally and as a Business)

Conditions: How do the current economic conditions impact your business and industry?

Capital: How much do you have invested in your company?

Capacity: How will your company pay back the debt?

Collateral: What assets are available if your company cannot repay?

Why a Business Fails

Poor management

The Business offers products and services that nobody wants or cannot afford

Inability to adapt to a changing environment

Failing to control costs

Poor execution creating dissatisfied customers

Creating an effective business plan will assist you in avoiding the pitfalls of running a business. Seeking professional help is another important way to avoid or plan for business challenges.