Jonathan Sears,


Partner, Sears Chartered Accountants

11 years experience as a licenced Chartered Accountant.

Other articles by this author

When starting your own business, be cautious.

The last 30 years have seen some tough times: 20% interest rates in the early 80s, recession in the early 90s, and a near collapse of the financial system in 2008. Those who survived financially will probably make it through the current economic struggle because they have learned how to keep going regardless of what the economy throws at them. Those dreaming about starting their own businesses should consider the following precautions.

Temper Your Expectations

Start-up businesses have high expectations that can sometimes outstrip reality. Customers and clients need time to find you and get to know your business. New businesses may have a “grand opening” to create public awareness. Sometimes, opening prices are below normalized mark-up prices and people flock to the location to take advantage of savings. Start-up entrepreneurs should not hinge their expectations on crowds of “cherry pickers” who take the best you have to offer and then do not return when your prices go back to normal.

Do Not Over-Extend Yourself

Start-ups often overestimate their ability to produce or deliver products. It is better to be up front with your clients that you cannot meet their deadline and negotiate a mutually satisfactory timeline, rather than disappoint when you fail to meet expectations. Keep in mind that when you set a deadline your clients will be making their plans according to your promise.

Arrange Advance Financing

Many start-ups underestimate the working capital required to get the business off the ground. Creating sales can require unexpectedly high amounts of working capital. Unfortunately, it is all too easy to overestimate sales and the speed with which receivables will become cash. This miscalculation leads to underestimating the time required for a business to generate sufficient funds to be self-financing.

In today’s economic environment it is hard to tell when a small business may become profitable. Some small online-business bloggers boast of being profitable almost immediately because of the low cost of getting into an online business. More conventional businesses with bricks-and-mortar locations and the associated costs may take a year or even two just to break even. Thus the entrepreneur should project operating cash needs for HST remittance, loan repayment, rent, inventory, utilities, wages, and vehicles and, of course, personal income needs for at least a year. The entrepreneur must also recognize that in addition to everyday working capital needs there will be capital expenditures for computers, cash registers, equipment, leasehold improvements, and vehicles, of which will drain working capital. Most financial institutions will assist you with capital loans, revolving lines of credit and credit cards.

A client’s deposit can be used to pay the HST.

Obtain a Deposit

Collecting funds after the job is completed can be tough. Clients may not want to pay or may delay payment for two or three months. These delays may cause problems with HST remittance. HST is recorded when the sale is booked and must be remitted regardless of whether the funds have been collected.

Requesting a deposit before a job begins has several advantages. First, a deposit indicates the client is committed. Second, a deposit is not considered to be a sale and therefore remittance of HST is not required. Finally, if the client delays payment after the sale the deposit should be sufficient to cover the HST and provide some working capital.

Control Expenditures

Good cash management requires that you should anticipate the best and worst circumstances that are likely to occur over the next fiscal year. As owner-manager you know you must pay rent, utilities, suppliers and employees each month. Rent and utilities are essential to staying in business. Staff, vehicle expenses and inventory are major costs over which you have some control and can be projected with some accuracy. It is important to isolate those areas where cash flow needs are variable. Your findings may indicate that you should lay off staff and do the work yourself, drive your own delivery vehicle rather than use a courier or arrange for on-time delivery of inventory rather than stock the shelves.

Project Your Needs

Optimism is what buoys entrepreneurs but reality can sink them. Start-ups often purchase goods or hire employees in excess of requirements. Consider inventory and staffing an essential part of your projections. Better to have shelves that need replenishing and a skeleton staff that is always busy than shelves full of unsold products and excess staff that drain cash reserves.

Stay the Course

When business is slow self-doubt will creep into any owner-manager. The temptation will then arise to branch out into areas only marginally related to the core business or areas of expertise identified in your original business plan. Such acts of desperation confuse clients and damage your brand. Energy squandered on these distractions is energy taken away from maintaining the quality of your product or service which now risks becoming substandard. If your business plan was sound in the first place and you have rational belief in your ability to succeed, maintain focus on your strengths. This does not mean you should not look into branching out into other areas but always ensure that the new area does not take away from your strengths.

Adopt a Mentor

We all need someone to guide us in making business choices. Start-up entrepreneurs should not be hesitant to approach experienced owner-managers in their community. Not only do these individuals possess knowledge and experience that takes years to acquire but they may also connect to networks of people who may be able to offer guidance. Joining a local business association may also be helpful.

Statistics Tell the Story

Ninety-eight per cent of businesses in Canada have fewer than 100 employees but employ 48% of the private-sector labour force and create just over 30% of Canada’s GDP. About 21 per cent of small businesses produce goods and 79 per cent produce services. Chances are self-employment will be in the future for many. Cautious optimism is the essential ingredient of survival.


BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

BUSINESS MATTERS is prepared bimonthly by The Canadian Institute of Chartered Accountants for the clients of its members.

Richard Fulcher, CA – Author; Patricia Adamson, M.A., M.I.St. – CICA Editor.