STARTING A BUSINESS
Starting a business is a daring and demanding endeavor and requires a lot of time and effort. Before you can turn your ideas into reality, you must assess the risks and rewards of the venture, and take into account many factors such as capital requirements, sources of funding, the industry in which you will be operating, and the level of competition. A professionally formulated business plan can assist you in identifying your business' strengths and weaknesses, evaluating its financial viability, and securing financing. We are accounting professionals who can turn your business ideas and crude data into a meaningful business plan and increase your business' chance of success. It is worth mentioning that business plans are not just for start-ups; existing and especially growing businesses use business plans in order to communicate their vision to your employees, prepare financial forecasts, raise capital, and compare their actual and planned performance. For more detailed information about Business Plan preparation, please see our “I want to develop a business plan” page.
Once you have created a business plan and secured financing, you will need to decide the legal structure of your business. This is a complex issue and needs careful consideration as it will determine you and your business’ liabilities, and income tax consequences.
There are several ways in which one can carry out your business: as a sole proprietorship, a corporation, or a partnership. Each has some advantages and disadvantages.
For example as a sole proprietor, you do not have to file a separate corporate tax return every year (which can be costly) and report your business income as part of your personal tax return; this allows you to claim any losses incurred in your business on your personal tax return. However, a sole proprietorship is not considered a separate legal entity and you stand personally liable should your business be sued for damages or misconduct.
Incorporating your business involves some setup costs such as name searches and incorporation fees and requires a separate corporate tax return to be filled every year. An incorporated business is also subject to closer scrutiny by the provincial or federal regulatory bodies. For most profitable businesses, however, the tax savings outweigh the initial and ongoing costs of incorporation. Once incorporated, your business becomes a legal entity which means that you and your personal assets are protected from liabilities incurred by your business. It should be noted however that most banks require a personal guarantee on business loans which means that should your business default on the payments, you are personally responsible for the loan. Assuming that you or your family members are the shareholders of the newly incorporated business, each shareholder is also entitled to $ 800,000 Capital Gains exemption when disposing of the shares, a fantastic opportunity for those who want to retire or pass on the torch to their children. Another advantage of incorporating your business is the ability to split the income generated by your business with family members if they play a role in your business.
The most attractive feature of incorporating a business is the ability to retain a portion of the earnings in the business. Since corporations enjoy lower tax rates and also unlike sole proprietorships and partnerships have the option of maintaining all or a portion of their earning in the corporation, the shareholder(s) personally, pay tax only on amounts received as salary or dividends received from the business. This is an enormous opportunity for those businesses whose income fluctuates from year to year or those whose income exceeds the needs of the shareholder(s). For example
Whether you choose to conduct your business as a sole proprietor or corporation or if you need to assess which structure suits your needs, we are here to help. We, at MKG, can provide you with the relevant facts about your business and its financial performance to assist you in making sounds business decisions. If you choose to incorporate, we can guide you through the process, from names searches to filing the legislative paperwork and obtaining certificates.