Starting Your Business Series - Part 1: Top 3 Financial Considerations When Starting a New Business

The month of September comes with a rush of energy. The lazy days of summer are behind us and the back-to-school rush is upon us. For us, September feels more like a new year than January does. It also happens to be a great time to start a business. If you have been dreaming up a new venture over the last couple of months you may want to consider getting the ball rolling during one of the most profitable quarters of the year - Q4.

So how do we plan for a successful start? Well in our experience, new business owners tend to start with the fun stuff. Things like brand colours, business cards, and photo shoots. Don’t get us wrong, we love that aspect of running a business too. It’s always a treat to spend some time being creative. But, getting your financial ducks in a row is what will make the biggest difference in the success of your business. In this blog we round up the top 3 financial considerations when starting your own business. 

Read on…

1. What are your up-front costs?  

Dreaming up a business is fun, but you need to know if your business is financially viable. Do the research to find out what funds you need to start your business. Try to get as detailed (and as honest) with yourself as possible. If you are a service-based business, your start-up costs will likely be significantly lower than a brick-and-mortar or product-based business. That being said, small costs can add up quickly. Things like tools, tech, payment apps, insurance, web hosting, and app subscriptions.. Make sure you list out all the possible expenses and create a rough monthly budget for your soon-to-be business, forecasting for a minimum of 12 months to ensure you’ve captured a full year of expenses and anticipated revenues. By doing this you have created your first 12-month budget.  Now you have something to measure your actual results against.  

One important note: it is important not to just estimate your expenses.  Do some homework to get a true sense of your costs.  This will create fewer surprise expenses for you and will lead to higher probability that your business will maintain its viability over time.  

Bonus tip: Many subscription-based services out there charge in USD, so when making those budgets ensure you convert to CAD. This will give you a truer financial picture.  To get a ballpark understanding of the current exchange rate you may visit the Bank of Canada posted exchange rates, or enquire at your financial institution for the most accurate rates you will be charged. 

Another common cost that new entrepreneurs miss is paying themselves. Yes, paying yourself is important to your financial viability as a business owner. Sure, for the first few months you may not expect to have money left over to pay yourself as you figure stuff out, but don’t forget to include how much you want to make into your calculations. After all, that’s the whole point of starting a business right? 

It’s also crucial to get an understanding early on in running your business of how much you should be budgeting each month for income tax.  Time and time again, this is where we’ve seen many entrepreneurs get caught off guard at tax time.  If you are just starting out and operating as a sole-proprietor, THIS CALCULATOR will be hugely helpful in helping you plan how much you need to save for taxes.  We’ve also built estimated tax savings into our smart bookkeeping template My Digital Bookkeeper. 

2. What is your target profit?  

We all start businesses for different reasons. But we are willing to wager that topping the list has to be making a good living while doing something you love. Your business needs to be profitable, otherwise, it’s just an expensive hobby. Properly planning to create a profitable business is something you need to start with, not hope for. You need to ask yourself: how much revenue do I need to bring in to cover your businesses operating costs and also pay yourself according to your earnings goals? It’s important not to be overly-optimistic about this part of business planning. 

You have to consider things like how many sales you would need to make per month in order to be profitable. This is wildly different for each business. For example, a business selling $10 handmade soap is going to need to move a lot of units to get to profitability. A service-based business on the other hand may just require a handful (or fewer) clients in order to get to the same place. So really think through what it will take to get to that profit and whether you are ok with the best and worst case scenarios. In some cases, it may take a while to penetrate a market segment and figure out the right marketing strategy. Preparing for profitability is a grounding exercise we recommend to all new business owners. 

3. Do you have time for this? 

You know what they say - time is money. It’s true both in the sense that your time is worth money and also in the sense that making money requires time. Starting a business, especially for a solopreneur, is a time-consuming endeavor. You are in charge of every aspect of this baby - not just the parts you are good at or you find fun. You have to be able to wear all the hats and be honest with yourself about how much time and energy you can devote to the business. 

Sometimes we are in a season of life (parents of young children anyone?) where our time is not really our own. That’s ok. We suggest that you go in with eyes wide open. One way to get a clear picture of the time you really have is to do a time audit. Make a note of everything you do in a week and see where you can fit in running a business. We all have different capacities and different support systems. At the end of the day, you don’t want to start your business and burn out three months in because you are working late every single night, haven’t seen your friends in months, and are not taking care of yourself. Hustle culture may have you convinced that that’s the only way forward, but in our opinion, the key to a sustainable business lies in balanced time management. 

The Bottom Line

Starting a business is an exciting thing! It holds the promise of a better future and more fulfilling work life. That’s why we started ours. We wanted to help solopreneurs carve their own path and make sure they were on solid financial ground while doing it. Dream big, but plan small. We encourage new business owners to get as granular as they can about the nitty gritty side of their business. It may not be the most exciting part to plan, but when you know your startup expenses, have a solid operating budget set for your first 12 months and beyond, have planned your path to profitability, and have a plan to execute you are increasing your chances of success tenfold. Go get ‘em!

Interested in learning more from us?   Follow along with us through our social media accounts (find us on Instagram @growcpa) and sign up for our newsletter for more educational and fun financial content. 

Wishing you success in your business,

 - Martina + Ashli

Date published: September 1, 2022

Disclaimer - The information provided in this blog is general in nature and solely for educational purposes. Readers use and implementation of the information comes at their own risk and is their own responsibility.