Finding stability and having a source of income are goals that most newcomers have in mind as they plan their move to Canada. While a majority of them seek opportunities as an employee, some aspire to start their own business and become an employer. Navigating the process of setting up a company or business in a foreign land may seem daunting or confusing for many.
Through this article, we hope to explain and simplify some of the basics you should be aware of as you plan to start your business in Canada. For easy consumption, we’ve divided all essential action items into three phases: 1. Planning, 2. getting the business up and running, and 3. managing finances.
1. How to plan your business
Developing a business idea
One of the initial action items is to fully develop your business idea. Think about the details and fill in all the gaps. You may want to begin by:
- Outlining your business goals,
- Exploring market trends and competitors,
- Understanding the needs of prospective customers,
- Figuring out the core issues that your product or service solves,
- Defining your market niche, and
- Getting a mentor. A mentor can provide valuable advice based on personal experiences and help you in successfully navigating the process of setting up your venture.
Choosing a location and renting office space
Many entrepreneurs start-off working from home, and as they grow their operations, seek an office space. So don’t feel compelled to find an office space from the get-go. However, remember that finalizing a work location is essential for tasks like business registrations, and obtaining licenses, and permits.
A few factors that you should consider while choosing a business location are:
- Business needs,
- Size and layout of the space,
- Zoning restrictions and environmental issues,
- Target market,
- Applicable taxes,
- Noise levels, and
- Local business environment
Tip: For those considering setting up your business at home, be sure to look into the regulations and restrictions that apply to home-based businesses. These can be found on all city-specific websites.
Writing a business plan
A business plan is a written document that serves as a guide for your business, outlining the roadmap, goals, milestones, success measures, and other useful information. Some key elements that define a strong and well-thought-out business plan are business objective and opportunity, market positioning and analysis, competitor landscape, financials, and target market information.
Creating a business plan will help you:
- Sell your idea to investors and potential stakeholders,
- Measure your success,
- Plan for operational requirements, and
- Set reasonable financial forecasts.
Planning the business structure
Before you start your business, it is essential to understand the different business structures in Canada and identify one that would work best for your business type.
There are five main types of business structures:
- Sole proprietorship
This is the most common way to start a small business. A sole proprietorship is a business made up of one business owner (you) that has not been registered with the government as a corporation. For tax purposes, a sole proprietorship is the most basic way to run a business in Canada.
Tip: You can start as a sole proprietor and decide to incorporate your business later.
This is a type of business consisting of two or more individuals that own a business together. There are three types of partnerships: General partnerships, limited partnerships, and joint ventures. There is no legal structure for a partnership. However, partners usually have some type of contractual agreement that outlines revenue, expenses, and task sharing.
Corporations are more complicated legal structures than proprietorships or partnerships. Incorporation is a process in which a separate legal entity, owned by its shareholders, is formed. Corporations are expected to keep meticulous records and report their financial situations to governing authorities yearly.
According to the Business Development Bank of Canada (BDC), corporations are more costly to operate than sole proprietorships and partnerships, and hence, new businesses do not usually incorporate unless they plan to acquire capital through the sale of shares or desire greater credibility. Typically, companies consider incorporating when they generate at least $50,000 CAD in annual revenue.
A cooperative is an incorporated business that is democratically controlled by people with common needs. There are different types of cooperatives in Canada, including consumer, producer, worker and multi-stakeholder.
Establishing a nonprofit business in Canada is a similar process to setting up any other business. Nonprofits provide a product or service designed to benefit their community. Examples of non-profits include a community organization, social or sports club or charity.
Tip: Ownr, an RBC Venture, has published the pros and cons of each type of business structure, which can help you in deciding which structure might be best for you.
You can also take the online Ownr business structure quiz to find out which structure might be right for you!
2. How to start a business in Canada
Naming your business
Some of the things to keep in mind while choosing a business name are:
- Ensuring the name is reflective of the product or service you’re offering,
- How you want your business to be perceived,
- Choosing an easy to remember and pronounce name, and
- Keeping it unique and distinctive to avoid confusion and legal issues.
As a next step, you should find out if the name is taken. The government of Canada outlines that in most cases, if someone is already using a name, you cannot legally use it. And by law, the name of your business can’t be the same as or very similar to an existing corporate name or trade-mark.
There are a few places you should check to see whether a name is taken:
- General internet search: Using a simple Google search is the easiest way to find out if someone is already using the business name you intend to use. You may also want to check whether the Internet domain name and social media handles you want to use are already taken. If you plan to do business outside Canada, check whether anyone is using the name in those countries too.
- National name databases: There are two national databases that each cover most of the jurisdictions you may want to search in Canada. You can search one or both of these depending on where you want to set up your business:
- New Upgraded Automated Name Search (NUANS): It is Canada’s official database of incorporated and trademarked businesses across the country and reports a list similar to provincial/territorial corporate names and trademarks, except for names in Quebec.
- Provincial and territorial trade name databases: After searching the national databases, you may also want to search registered trade names in other provinces and territories if you ever plan to do business there.
|Ownr, an RBC Venture, is the simplest, most convenient way to register or incorporate your business and build your brand. Their database is connected to all the national and provincial registries, allowing you to search 30 business names for free. |
Create an account now and get started with setting-up your business with ease.
NUANS Name Search: Everything you need to know – The article guides you on how to use the NUANS database, provides cost estimates for the NUANS report, and tells you how to order one.
Registering the business name
Most businesses need to register their business name with the government, unless you are a sole proprietor operating a business under your own legal name (for example, John Doe). The process for registering your business name will depend on whether you’re registering your business name as a sole proprietor or a corporation and what province you’re in. For instance, it’s possible to incorporate your legal name as a business name in Ontario. Not every province allows this, for instance in the province of Alberta you’ll need to add in your business activity to include your legal name for your business name.
Here are some guidelines for business name registration from the government of Canada:
For an incorporated business, the process of incorporating includes business name registration within the jurisdiction where you are incorporating. If you incorporate federally, you will have exclusive use of your corporate name across the country and if you incorporate provincially or territorially, you have exclusive use of your corporate name in the province or territory where you incorporate.
If you want to use a name other than your legal business name, you will need to register it as a trade name. Failing to register a name that you are using can result in significant fines and other legal consequences. Examples include:
- If you are a sole proprietor but are adding something to your legal name to modify it (for example, Jane Doe Consulting)
- If you plan to use a name other than your legal name for marketing purposes (for example, your business’ legal name is Smith Bakeries Inc., but you are marketing as Bob Smith’s Bakery)
Registration of trade names is a provincial/territorial responsibility. To register your trade name, visit the registry of the jurisdiction(s) where you plan to do business:
In Newfoundland and Labrador there is no registration of trade names. Registration is only required for corporations and cooperatives.
Permits and licenses:
To check if your business requires a permit or license to operate, you can use the Government database, BizPaL. On this site, you can filter permits based on your location, industry, and business activities and save the ones that apply to your situation.
Get detailed information, tips, and find frequently asked questions on how to register your business name in Canada.
|Register your business through Ownr, using the promo code ARRIVE60 and get $60 CAD off|
3. How to manage business finances
Familiarize yourself with Canadian sales taxes
An important aspect of running your own business is ensuring that you’re charging the correct sales tax for your goods and services. There are two tiers of sales tax in Canada: Federal and provincial.
Federal sales tax: Goods and Sales Tax (GST)
This is a federal tax charged on the supply of most goods, other property and services in Canada. Businesses must register and charge GST or Harmonized Sales Tax (HST) on all taxable goods, other property, and services unless you qualify as a small supplier. A small supplier is defined as a person whose total taxable revenue is $30,000 CAD or less in the last four consecutive calendar quarters. A small supplier can elect to register, in which case it must collect GST.
Provincial sales taxes
- Provincial Sales Tax (PST): This is a sales tax levied on goods and taxable services provinces that have not harmonized their PST with the federal GST. Rates are set by each province and do vary, as not all provinces charge PST.
- Retail Sales Tax (RST): The provincial sales tax in Manitoba is called RST.
- Quebec Sales Tax (QST): Businesses registered in Quebec are required to charge customers QST instead of PST. QST is collected on the supply of most goods, other property and services.
Harmonized Sales Tax (HST): Some provinces have merged their provincial sales tax with GST. Simply put, HST is a combination of GST and PST.
Learn more about Canadian sales taxes, rules and exemptions associated with them, and the process to register, file, and pay taxes in the Small Business Guide to Canadian Sales Tax Rates.
Invoicing 101: Get paid for your products and/or services
Cash flow is crucial to the success of small businesses. This makes it essential to have a proper invoicing system/tool and process in place, so you can get paid in a timely manner.
Ensure your invoices:
- Include all relevant information such as contact information, itemized list of products or services provided, due date and subsequent payment options you accept,
- Are appropriately branded, and
- Sent out promptly.
You should also consider tracking your invoice status through software or tools and send out payment receipts once payments are made. If you’re dealing with paper-based invoices, then be sure to store them safely as you might need them while filing your taxes.
Invoicing basics for small business owners – Get tips to master invoicing and make it easy for your clients and customers to pay you.
|Whether you’re a start-up, growing steadily or expanding internationally, the Royal Bank of Canada (RBC) has the right business account to support your business at every stage. Learn more about RBC Business Accounts and find one that’s right for you.|
Learn to manage your finances
Besides your natural instincts, you can usually rely on your company’s financials through bookkeeping and accounting to tell you what to do.
Bookkeeping: Refers to the day-to-day practice of recording, categorizing, and reconciling (or cross-referencing) every financial transaction a business makes in a day.
Accounting: While bookkeepers record data, accountants help turn that data into insights. An accountant analyzes and interprets all the information that a bookkeeper (or you) collect to prepare financial statements that summarize business performance. Accountants can help you forecast future cash-flow, advise on long-term strategy, file statutory returns, and help you get the most out of your tax return.
Learn the differences between accounting and bookkeeping and understand the benefits of each practice.
Setting up a business as a newcomer in Canada may seem daunting and stressful. However, with the right assistance and guidance, you will be able to successfully set up your business with ease and confidence.
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This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.