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Info-Guide – Before starting your business

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1. Is entrepreneurship for you?

Being your own boss can be very rewarding, but it's not for everyone. Before you take the first step, take some time to find out if you have what it takes to be an entrepreneur, to understand the benefits of entrepreneurship, and to learn about your chances of success.

2. Assess your financial resources

Before going into business, you must take stock of your financial resources. You must estimate:

  • the amount of money you are willing to put at risk
  • the minimum income needed to meet your current obligations and continue to live comfortably

Estimate the income needed to meet your living expenses

Your minimum monthly draw from the business must allow you to cover your living expenses.

Include expense items such as:

  • monthly payments on loans and credit cards
  • Rent or mortgage payments
  • food and clothing
  • automobile expenses
  • taxes

Subtracted from:

  • income from other sources

Estimate your capital assets

Your next step will be to determine the capital (money, property and effort) you are willing to invest in your business.

You may need to sell some of your personal assets to obtain the cash needed to start your business. In undertaking this assessment, you must determine your net assets – what you own less what you owe.

What you own:

  • cash
  • investments
  • real estate
  • automobiles and equipment
  • life insurance

Less what you owe:

  • loans
  • charge accounts
  • mortgages

How to recognise the risks

Various factors may cause the failure of a business. It is therefore important to recognize the risks, including:

  • lack of experience
  • wrong product
  • poor timing
  • lack of money
  • improper pricing (too high/too low)
  • inventory mismanagement
  • spending too much on buildings and equipment
  • poor credit granting practices
  • excessive withdrawals by owners
  • unplanned expansion
  • wrong attitude
  • wrong location
  • family pressures

Strategies for reducing risk

  • Your first challenge is to decide on the level of risk you are willing to assume and understand the consequences of that choice.
  • Talk to people. Meet with potential clients to discuss your idea and what they, as customers, want.
  • Identify the leaders in your field or other fields and see what factors contribute to their success. Feel free to copy good ideas.
  • Consider a pilot test or a survey on the needs of your customers.
  • It may be possible to play it safer by developing your idea on a small scale.
  • Make sure you have the skills to run your business. If necessary, follow extra courses on bookkeeping, marketing, personnel management, etc.
  • All businesses today are affected by some form of government regulation: taxes, fire, safety, transportation and so on. Make sure you are up-to-date with any regulations that may affect you.
  • Work with businesses similar to the one you want to start.
  • Think of first starting a home-based business on a part-time or full-time basis.

3. Buy a business or start your own?

Starting a business from scratch can be overwhelming for first-time entrepreneurs. If you have a great business idea and are ready to work hard to build it from the ground up, then you may wish to start your own business. But if you want to hit the ground running and avoid some of the common start-up pitfalls, then buying an existing business or a successful franchise may be a better option for you.

Starting your own business

Benefits

  • Complete freedom to design and manage the business according to your vision.
  • Not bound by anyone else's rules, history or assets.
  • Opportunity to carve out a new niche in the market.
  • Can be less expensive than buying a successful business.

Challenges

  • Can take time to become profitable.
  • There is no guarantee of business success and a high rate of failure for new businesses.
  • Can be more difficult to get financing because lenders or investors are taking a risk with your idea.

Buying an existing business or franchise

Benefits

  • Benefit from the work that has already been done on building a brand, developing customer relationships, developing business processes and acquiring assets.
  • Can start bringing in profits more quickly.
  • Can be easier to get financing because the business model is proven.

Challenges

  • The upfront investment is often higher than if you were starting your own business.
  • The previous owner and/or franchisor's business model and way of doing business may not be a perfect match with what you envision.

4. Creating your own business – Developing your ideas

If you decide to start a new business, you will need to spend some time developing your business idea. One of the greatest advantages of being an entrepreneur is being able to work on something that interests you and that you are passionate about. Unfortunately, passion does not always translate into profits.

Research, research, research! The more information you can gather about the potential demand for your product or service, about your competitors, and about the needs and wants of your prospective customers, the more successful you are likely to be.

Before starting a business, you need to evaluate your idea and determine what your chances are of making a profit from that idea. This document lists some things that you should consider and provides links to additional information to help you assess your idea.

Is your idea truly original?

You will need to research your idea to see if it is truly original or whether someone else has commercialized it. Capturing a niche market — one that no one else is targeting — may be more profitable than competing with others who sell a similar product or service. A business expert or mentor can help you evaluate or enhance your original business idea.

Will people be willing to pay for your product or service?

A great idea can only translate into a successful business if people are willing to pay for the product or service.

  • First, you need to determine the target market for your offering. Are you planning to sell to young people or to seniors? Is your product primarily for women, men or both? Is it a necessity or a luxury item? Are you going to sell to individuals, other businesses or to the government?
  • Once you know who you are going to sell to, you'll want to find out how much the target market would be willing to pay for your product or service.
  • If your product or service is something people would be interested in, but not willing to pay for, you can consider alternate business models. Some businesses, in particular in the service industries, offer their service for free or at a low price, but are able to make money through other avenues, such as advertising.

Who is your customer?

Before you begin selling something, you need to know who you are selling to. If you haven't determined who your target market is, you are likely to try to be all things to all people and end up with a product nobody likes or a service that doesn't meet anyone's needs.

When developing a general profile of your customers, you might want to define them by their demographic characteristics, such as:

  • Age, usually given in a range (20-35 years)
  • Sex
  • Marital status
  • Location of household
  • Family size and description
  • Income, especially disposable income (money available to spend)
  • Education level, usually to last level completed
  • Occupation
  • Interests, purchasing profile (what are these consumers known to want?)
  • Cultural, ethnic, racial background

For example, a clothing manufacturer may consider a number of possible target markets — toddlers, athletes, grandparents, teenagers and tourists. A general profile of each of these possible markets will reveal which ones are more realistic, pose less risk and are more likely to result in a profit. A test market survey of the most likely target groups, or those who buy for them, such as parents for babies and toddlers, can help you separate real target markets from unlikely possibilities.

Once you have defined your target customers, you must learn about their needs and preferences.

  • What challenges do they have that could be solved with your product or service?
  • What are their needs and expectations regarding this product or service?
  • What types of things do they desire?
  • What do they spend their money on?
  • Where do they shop?
  • How do they make spending decisions?

Those are just a few of the many things you might want to learn about your prospective customers.

To develop a profile of your customers and understand their needs, you will have to do some market research.

Will your product or service be able to compete with those of existing businesses?

Once you find out who your customers are, you will need to look at who else is selling similar products and where they are selling them. Will you be competing with a product that has already been marketed? If your idea is a consumer product, check stores and catalogues or visit trade shows to find out what other products are available and what companies market them. You need to determine why customers will buy from you and not from your competitor. Is your product superior or is your price lower than other businesses? The best way to do this is to conduct market research using existing data or by doing your own survey.

How will you distribute your product or service?

To distribute your product or service, you can either start your own company or you can try to convince an existing company to buy your product or idea from you. It may be easier to start your own company than to try to convince another company to distribute your product or service. Many potential buyers are more willing to deal with a company as a supplier than they are to take on a product or invention from an independent person.

How will you promote your product or service?

An idea or invention is not very useful without customers to buy it! Have you considered how potential customers will discover your product? Some ways to market your product are:

  • Having a website and being active in social media
  • Participating in and attending trade shows, and by getting known through your trade association
  • Placing advertisements in newspapers, on the radio, on television and on the Internet
  • Distributing brochures

To learn more about effective marketing and promotion techniques, see:

See more documents

Access more resources in the electronic version of this document

See more documents

Access more resources in the electronic version of this document

Do you need intellectual property protection for your idea or invention?

Your idea, invention or product may need to be protected from being copied by others. Find out if the tangible result of your intellectual activity is eligible for intellectual property protection and how to get it.

Society of Composers, Authors and Music Publishers of Canada (SOCAN)

  • 33 Milton Street, Suite 500
  • Montréal, Québec
  • H2X 1V1
  • 1 800 797-6226, 514 844-8377

Visit the website

Services offered:  Licensing - Rights management - International royalties - Promotion and defense of its members' rights

Canadian Intellectual Property Office

  • 1 866 997-1936

Visit the website

Services offered:  Patents - Copyright - Trademarks - Intellectual property

Are there any government restrictions or obligations that could limit your idea?

Before you move ahead with your business idea, you may want to check to see if there are any regulations that may prohibit or limit the sale of your proposed product or service or the operation of your business.

Where can you go for help to evaluate and to clarify your idea?

While you are still considering your idea, you may wish to get some help along the way.

Contact Info entrepreneurs

For more information, you can call, visit or e-mail Info entrepreneurs. Our business information officers are prepared to provide assistance with your business questions and can direct you to relevant information in our extensive collection of business-related publications, directories and electronic databases.

Business advisors

You may also wish to get help from professional advisors such as lawyers, accountants, and business consultants. Consult our directories of Canadian companies to find ones located near you.

5. Buying a business

Buying a business can take time, energy and a fair bit of research. It can be less risky and more affordable to purchase an existing business than to start one from scratch, but it is important that you do your homework to ensure that you buy the right business for you, and that you pay a fair price for it.

Where to find a business to buy

Businesses for sale are often advertised in print media and online, but sometimes business opportunities can be misleading. Make sure to do your due diligence before you take action. Try trade publications or commercial investment magazines, or talk to a broker who specializes in a specific industry. Networking at business events can help get the word out that you are looking to buy.

What kind of business should I buy?

If you buy an existing business, you have two choices: franchise, or traditional (independent) business. There are advantages and disadvantages to both.

Franchise:

  • Proven track record — This is an established business with a proven concept; there is less risk and less initial capital required than with starting something brand new. Similarly, when it comes time to sell, you may have an easier time finding prospective buyers for a known entity.
  • Built-in customer base — People know what to expect from your business because they know the brand, and trust the product or service
  • Setup, support and training — Having a parent company means having the infrastructure and processes in place, from equipment to uniforms to corporate advertising, rather than having to develop them on your own. Other franchisees can also be a source of support.
  • Set of rules and regulations to follow — When you operate a franchise, you have less control over the operations than if you own an independent business; you also have to pay a percentage of your revenues to the parent company, which reduces overall earnings.

Independent business:

  • More control and responsibility — You have the autonomy to set your own rules, but the success or failure of the business rests solely on your shoulders.
  • No fees or royalties — You keep all of your earnings without sharing any of the profits
  • More opportunity and risk — You can sometimes find a business that may not be doing well but has potential. If you are willing to do the work, you may reap the rewards; you must be prepared if things don't turn out as planned.

Evaluating a business

Before deciding to buy a business, you should evaluate its condition and potential. Think about the following things:

  • What is the physical location of the business like? Is the office, warehouse, plant or retail space in good shape? What about any equipment or inventory?
  • If it's an online business, how well-designed is the website? Is it secure? Are there any metrics to study?
  • Does the business have a good reputation? You can check online for customer reviews.
  • How visible and easily accessible is the business? Is it located in an urban or rural area? You will have to consider expenses like increased shipping costs if you are farther away from your suppliers and customers.
  • Are the products or services generating revenue? Are sales increasing, decreasing or are they flat?
  • Does the business have a good working relationship with its suppliers and bank?

If a business is doing poorly, examine what the potential causes are. It may be a case of poor management, or inadequate resources. If you think you can turn it around and make it profitable, you could stand to gain from your investment; on the flip side, you are taking a big risk if it doesn't work out.

If a deal seems too good to be true, chances are, it probably is. Learn how to determine what type of business you should buy.

Determining how much to pay for the business

As a buyer, it all comes down to knowing what you can afford before negotiations start. You should be flexible in your negotiations, but also keep your budget and the value of the business in mind.

What is the value of the business?

  • You will have to determine the value of assets such as the building, equipment and products.
  • Further factors to consider are the business' financial statements, annual reports and intellectual property (for example, patents and trade-marks).
  • Other valuable assets to any business are its reputation, customer lists, and quality of personnel.

Talk to clients who buy directly from the business. It is better to find out the reputation of a business before you sign on the dotted line. Banks are more receptive to a business that has a proven track record.

More information

Financing your acquisition

You will need money to be able to buy the business and may need some working capital to get things going.

6. Franchising

Starting a business from scratch can sometimes be overwhelming for first-time entrepreneurs. That's why investing in an already successful franchise may be a good solution for your new business venture.

What is franchising?

Franchising is a way of distributing products and services. The original business owner (the franchisor) grants a licence for the use of the trade-mark or trade name for a fee. The person who buys the franchise (the franchisee) is allowed to use the franchisor's business name and operating system to set up the business. As a franchisee, you pay the franchisor a certain amount (royalties) from your franchise's profits. Normally, the franchisor would draft a franchise agreement with you that includes details about how the franchise will be run.

What are the advantages of owning a franchise?

  • You don't have to come up with an idea for a new business.
  • You get help with business start-up (equipment, suppliers, training).
  • You can buy your supplies in bulk.
  • Your business benefits from existing brand name recognition.
  • An established supply chain and customers are already in place.
  • Buying into a successful franchise can be profitable.

What are the disadvantages of owning a franchise?

  • Franchises are all run the same way, so you have less flexibility to run the business the way you would like. This can sometimes be frustrating if you have your own ideas on how the business should operate.
  • Generally, the more successful the franchise is, the more expensive it is to buy.
  • There are ongoing costs, such as royalties and advertising.
  • Some franchisors may not provide a lot of support, such as training or mentoring.
  • Franchise agreements generally favour the franchisor, so be sure to have your own lawyer review the agreement carefully before signing.
  • The location of the franchise is at the discretion of the franchisor.
  • There is not a lot of legal protection available for the franchisee.

What franchise is right for you?

There are several online tools available to help you find the right franchising opportunity. You can search for franchises by brand name, investment level, industry, available locations, and more. Find out what franchise opportunities are right for you.

  • Franchising 

    Learn about the advantages and disadvantages of this type of business.

7. Training

The best way to ensure the success of your project is to receive training from experts in all aspects of a business.

  • Start-up training 

    Find a training program to create a start-up or understand the basics of starting a business.

Disclaimer

The information available on the Info entrepreneurs website comes from a range of government and private sector sources. Because of its general nature, the information cannot be considered exhaustive and must not be used in lieu of legal or professional advice. The information is updated regularly, however, certain details may not reflect recent changes.
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