Notes Starting a Small Business in Canada Mandatory Book PDF

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STARTING A SMALL BUSINESS CLASS

CHAPTER ONE: THE ROLE OF ENTREPRENEURSHIP AND SMALL BUSINESS IN CANADA NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP IN CANADA More interested in business since mid 1970 People believe bigger is better, but big government and big businesses failed to fix economic problem = people wanted to start small business INCREASE IN NUMBER OF BUSINESS ESTABLISHMENTS More business, more self-employment most business have none of very little employees INCREASE IN THE NUMBER OF EMPLOYEES OF SMALL BUSINESS 42% of job growth= small business making jobs INCREASES IN GOVERMENT INTEREST AND PROGRAMS government recognize they help economy so reduce paperwork INCREASE IN THE NUMBER OF SMALL BUSINESS RELATED COURSES AT COLLEGES AND UNIVERSITY because more interest INCREASE IN ENTREPRENEURIAL ACTIVITIES KNOWN AS INTRAPRENEURSHIP IN LARGE BUSINESS Entrepreneurship within existing organisation, use entrepreneur skills to solve problem and create additional revenue INCREASE IN THE POLITICAL POWER OF SMALL BUSINESS lobbying IMPROVEMENT IN THE IMAGE OF SMALL BUSINESS Viewed very positively, considered honorable Media had a big role WHAT IS A SMALL BUSINESS? No absolute answer, depends where and why WHY IS IT IMPORTANT TO DETERMINE THE SIZE OF A BUSINESS? COMPARISION AND EVALUATION GOVERNMENT AND LENDING PROGRAMS

The size will determine what you can apply for: tax reduction or gov. assistance, or how big a loan, ect. HOW DO WE DETERMINE THE SIZE OF A BUSINESS? 1.Number of Employees 2.Total Revenue 3.Profit 4.Types of Management-Ownership Structure

In the US, you have to fill 2 to be a small business (#4): a)Independent manager b)Owner-supplied capital c)local area of operations d)Relatively small size within industry

CURRENT STATE OF SMALL BUSINESS IN CANADA We have a lot of them YOUNG ENTREPRENEURS Youth unemployment high, more and more young entrepreneur SENIOR ENTREPRENEURS More and more, means income after retirement for them FEMALE ENTREPRENEURS More and more, about 40% of new business are led by woman IMMIGRANT ENTREPRENEURS More and more, lack network or English skills to find other job ENTREPRENEURIAL ACTIVITY BY INDUSTRY More in the noncapital intensive industry, like service (not need much equipment) ENTREPRENEURIAL ACTIVITY BY REGION Alberta and Ontario = most rapid growth CONTIBUTIONS OF SMALL BUSINESS LABOUR INTENSITY Creates more job than large companies INNOVATIOND AND INVENTIONS PRODUCTIVITY AND PROFITABILITY Small businesses are very profitable when they do these 6 things: 1.BIAS FOR ACTION learned that doing something is better than

2.STAYING CLOSE TO THE CUSTOMER so we know what they want 3.AUTONOMY AND ENTREPRENEURSHIP Breaking the company in small unit so they think independently 4.PRODUCTIVITY THROUGHT PEOPLE share rewards with employees = hard work 5.HANDS ON - VALUE DRIVEN executive stay close to business ex; management by walking around (MBWA) 6.SIMPLE FORM - LEAN STAFF few administrative layer FLEXIBILITY adapt easier to change CANADIAN OWNERSHIP only 1% of business in Canada are foreign owned SMALL BUSINESS LINKED TO ECONOMIC GROWTH encourage SB= good economy SOCIAL CONTRIBUTIONS Often contributes to field of their business for non profit SMALL BUSINESS AND THE FUTURE CHANGE world will change a lot, small business adapt well TECHNOLOGY help manage business and productivity INTERNET AND MOBILE TECHNOLOGY can reach global market for cheap

CONSUMERS DEMOGRAPHIC AND BUYING PATTERNS generations have different spending habits, follow the existing generations and the one that will follow

COMPETITIVE ASPECT OF MARKETS GLOBAL MARKETS more and more globalised but hard for small business to reach LARGE BUSINESS RESPONSE try to act like small business ECONOMY success of SB depends on economy POLITICAL CLIMATE depends on politic, right now gov loves small business SOCIAL CLIMATE well seen by society

CHAPTER TWO: THE SMALL BUSINESS DECISION THE SMALL BUSINESS DECISION: PERSONAL EVALUATION Very important to evaluate yourself to make sure that you can handle a SB ADVANTAGES OF SB OWNERSHIP INDEPENDENCE MORE PERSONNAL CONTACT WITH PEOPLE SKILL DEVELOPMENT POTENTIAL FINANCIAL REWARDS CHALLENGE ENJOYMENT

DISADVANTAGES OF SB OWNERSHIP RISK STRESS NEED FOR MANY ABILITIES LIMITED FINANCIAL REWARDS PEOPLE CONFLICTS TIME DEMANDS

DEMOGRAPHIC CHARACTERISTICS OF ENTREPRENEURS Entrepreneur come from every background but lot of them have same background ex: post-secondary high school, parents who set high standard, etc PERSONALITY CHARACTERISTICS REQUIRED BY SUCCESSFUL ENTREPRENEURS  ACHEIVEMENT ORIENTATION  STRONG VERBAL AND  RISK TAKING NUMERICAL SKILLS  INDEPENDENCE, SELF SELLING SKILLS  PROBLEM-SOLVING ABILITIES CONFIDENCE AND SELFASSURANCE  STRATEGIC PLANNING  INNOVATIVENESS  PERSEVERANCE THE SMALL BUSINESS DECISION: ORGANIATIONAL EVALUATION SMALL BUSINESS SUCESSES ALERTNESS TO CHANGE ABILITY TO ATTRACK AND HOLD COMPETENT EMPLOYEES STAYING CLOSE TO THE CONSUMER THOROUGHNESS WITH OPERATING DETAILS ABILITY TO OBTAIN NEEDED CAPITAL EFFECTIVE HANDLING OF GOVERNMENT LAWS, RULES AND REGULATIONS SMALL BUSINESS FAILURE Very current, few go bankrupt, lot of them close before FACTORS THAT CAUSE BUSINESS TO FAIL

EXTERNAL SHOCKS: ex: downturn in economy, change in currency rates, new competition, loss of customer, loss of suppliers, substitute product or change in laws and regulation. MANAGEMENT PROBLEMS: ex: starting without enough funds, inability to raise more funds, failure to control costs, problem attracting or keeping employees, growing quickly but poorly plan expansion. ENTREPREUNEURSHIP AND SMALL BUSINESS MANAGEMENT ENTREPRENEURIAL SKILL Required to expand or start business: creativity, flexibility, innovativeness, risk taking and independence MANAGERIAL SKILL Required to maintaining and solidifying the product service or business: how to develop strategy, set organizational goals, develop methods for achieving goals ENTREPRENEURIAL SUCCESS IN LARGE BUSINESSES TEN COMMANDMENTS FOR INTRAPRENEUR SUCCESS 1. Do any job needed to make your project work, regardless of your job description. 2. Share credit wisely. 3. Remember, it is easier to ask for forgiveness than to ask for permission. 4. Come to work each day willing to be fired. 5. Ask for advice before asking for resources. 6. Follow your intuition about people; build a team of the best. 7. Build a quiet coalition for your idea; early publicity triggers the corporate immune system. 8. Never bet on a race unless you are running in it. 9. Be true to your goals, but be realistic about ways to achieve them. 10. Honour your sponsor.

CHAPTER THREE: EVALUATION OF A BUSINESS OPPORTUNITY ENTREPRENEURIAL PROCESS The process involves four specific stages that include (1) identification and evaluation of an opportunity, (2) development of a business plan, (3) determination of the resources required, and (4) management of the business. IDEAS: SOURCE OF IDEAS OCCUPATIONS work experience HOBBIES DRAWING FROM EXPERIENCE think about your own consumer habits OBSERVATION

EXISTING PRODUCTS AND SERVICES DELIBERATE RESEARCH focus groups or personal brainstorming ASSESMENT OF BUSINESS OPPORTUNITIES QUALITATIVE ASSESMENT GOALS check our individual goals CONTENT OF WORK what type of work would that be LIFESTYLE what impact business has on lifestyle CAPABILITIES check skills and health to do this EXPERIENCE maybe start business in field of experience OPPORTUNITY ASSESSMENT 1. What product or service will the business provide? How will the business offer value to customers? 2. How will you enter the market? What will your competitive advantage be? 3. Who will the customers be? Why will they buy from you? 4.Assess the industry and environments your business will be operating in: What is the state of the economy? What are the economic trends? Who will your competitor be? What advantages and disadvantages do they have? What are the key success factors? 5. How will you market your product or service? What will your marketing mix 6. Where will you get your major supplies? What will your costs be? Will supplier8 a new firm? What terms are offered? 7. What will your start-up costs be? Where will you get the money? Project your income over the next three years? EVALUATION HOW TO BREAK INTO THE MARKET THREE WAYS TO BREAK IN MARKET 1. Offer totally new product 2. Offer existing product to a different market or industry ( shipping existing products closer) 3. Offer a similar product in the same market but with an advantage DEVELOPING A STRATEGIC COMPETITIVE ADVANTAGE THE RIGHT INDUSTRY Some industries tend to be conducive to small business success and may provide a competitive advantage over larger businesses:  Businesses or industries in which the owner’s personal attention to daily operations is essential to success. In a service business, for example, the expertise of the owner-manager is a major factor in generating revenue.  Businesses in which owner contact with employees is important to the motivation of staff and the quality of work done. Specialized or custom-made manufacturing processes or service businesses and other businesses in which employees have direct contact with customers fit into this category. As evident in the example above, Alexa Translations is building a competitive advantage by

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offering superior service to clients. Markets in which demand is small or local, making large businesses generally reluctant to pursue them. For example, many shuttle services have sprung up in n country in recent years. These services offer transportation to and from rural communities to larger urban centres. Industries that require flexibility. These include industries with high gro\vth rates, erratic demand, or perishable products. For example, there has been high growth in businesses that appeal to parents of young children who are seeking to maximize their personal development. Many specialized tutoring companies, dance and music instruction, and sports training businesses have started small and been quite successful. Businesses that are more labour intensive and less capital intensive. Because of the above points, a business that relies heavily on people rather than machines to provide its product or service may be easier to manage if it is small. For example, many specialized businesses have remained quite small. Simply Sweet (www.simply-sweet.ca) is a Montreal bakery that has managed to be quite successful baking specialized wedding and occasion cakes. The amount of labour and expertise involved has served as barriers to larger businesses. Industries that receive considerable encouragement from the government in the form oi financial, tax, and counselling assistance. Much of this assistance is directed at smaller businesses in the manufacturing, processing, exporting, and tourism industries. Such industries represent potential opportunities for small businesses.

THE RIGHT BUSINESS INDUSTRY THAT WILL GROW RAPIDLY IN THE FUTURE 1. Health care 2. Services for small business 3. Mobile business 4. Services that appeal to parents with children 5. Green products and services THE RIGHT ASPECT OF THE BUSINESS Choose aspect that will make your business that will make a competition to others (ex price selection or location) COLLECTING INFORMATION SECONDARY DATA Form of reports studies and statistic made by other organization! Cheap but not as perfectly accurate as they could be (additionally they can consult agencies for opinion) PRIMARY DATA Collecting info with own research’ more expensive but 100% accurate (not outdated) 1.OBSERVATION visually or through apps like trip advisor

2.SURVEYS mail in internet, or telephone or personal interviews 3.TEST MARKETING simulate their business to see how people react QUANTITATIVE ASSESMENT OF BUSINESS OPPORTUNITIES PREPARING THE FEASIBILITY REPORT Take info collected as quantitatively as possible and show in report how your business is possible. FORECASTING SALES: BUILT UP METHODE: estimate sale for each market every day and add every type of market ( ex: then then adults then kids, etc) BREAKDOWN METHOD: example: calculate population toronto, calculate number families in Toronto estimate the sales according to statistic of families STEP 1: CALCULATE MARKET POTENTIAL 1.Determine the market area and its population 2.Obtain revenue(sales) statistics for this market area for the product or types of service 3.Ajust the market potential total as necessary STEP 2: CALCULATE MARKET SHARE

CHAPTER FOUR: THE BUSINESS PLAN ADVANTAGES OF ORGANIZING A BUSINESS FROM SCRATCH -owner can determine nature of business, the competitive environment, the appropriate market and the size of operations -owner may chose his physical facilities and location -owner can obtain fresh inventory tailored to target market -owner can select employees -owner can choose his own information system -can be cheaper DISADVANTAGES OF ORGANIZING A BUSINESS FROM SCRATCH -owner lacks information to base future plan on -owner will take a lot of time to assemble physical facilities -new business always have bugs -hard to establish relationship with financial institution -owner face more risks LEGAL STUCTURE SOLE PROPRIETORSHIP Owned by 1 person. Total freedom but more expensive because of lending possibilities. If business fail, they can come take yours stuff PARTNERSHIP

Owner by 2 or more people. Chance of conflict, split revenue and lending. Can buy each other out. LIMITED PARTNERSHIP: silent partner who gives money for part of profit GENERAL PARTNERSHIP: share everything and has contract CORPORATION Business is an entity. If fail, they take the money of the company, not yours. More paper work and more expensive but secures the individual

CHAPTER FIVE: BUYING A BUSINESS AND FRANCHISING PURCHASING AN EXISTING BUSINESS ADVANTAGES OF PURCHASING MAIN: Knowledge of sales and operating history 1.REDUCTION OF RISK already have image and track record, less chance failure 2.REDUCTION IN START-UP TIME No need to find location, employees, products, etc. 3.FINANCING Easier to find money when your company already has a reputation 4.LOCATION Business location known by clients 5.ESTABLISHED MARKETING STUCTURE Relationship with suppliers, retailers, etc. 6.COST Can be cheaper to buy than to create business 7.EXISTING EMPLOYEES Already know business and have relationship with clients

8.MORE OPPORTUNITY TO BE CREATIVE Since start up already done, can be creative 9.REDUCE THE NUMBER OF COMPETITORS you’re buying one out DISADVANTAGES OF PURCHASHING MAIN: Marginal success record and overpaying 1.MARGINAL SUCCESS RECORD business for sell don’t have great success track 2.PHYSICAL FACILITIES may be old and unpractical 3.PERSONNEL you don’t get to choose them and they might fight new ownership 4.INVENTORY what you sell may not be in good condition 5.ACCOUNTS RECEIVABLE (buy something for supplier: suppliers have account receivable): may be hard to get the money you are supposed to get 6.FINANCIAL CONDITION often sell because bad financial health 7.MARKET AND KEY CUSTOMER may have only few key customers + new competitor 8.OVERVALUED 9.PAYING TO MUCH FOR GOODWILL: reputation SOURCE OF BUSINESS FOR SALE INTERNET GOVERNMENT DEPARTMENT TRADE JOURNAL

REAL ESTATE BROKERS OTHER PROFESSIONALS WORD OF MOUTH

EVALUATING A BUSINESS FOR SALE INDUSTRY ANALYSIS SALES AND PROFIT TRENDS OF THE INDUSTRY STATE OF THE ECONOMY LEGAL RESTRICTIONS AND PENDING LEGISLATION SOCIAL CONCERNS THE PREVIOUS OWNER  Why is the previous owner selling the business? The often advertised reason, “because of poor health," may refer to financial rather than physical health.  Is the previous owner a well-known and respected member of the community? Has this reputation contributed significantly to the success of the business? Will this success continue once that individual is no longer associated with the business?  Will the previous owner be available—temporarily, at least—to provide assistance and advice to the new owner? This help can be invaluable, especially to a purchaser who lacks experience in the industry or market. For example, Doug Robbins (www.robbinex.com), a business brokerage and consulting company, says in an ideal situation, the owner will remain involved as a full-time employee for a short period of time following the sale of the firm. He will then gradually reduce his involvement over time. Robbins actually recommends that a management contract be signed where the seller has to provide strategic advice for a period up to five years.  Is the previous owner willing to finance the purchase by spreading it over a

number of years? This may be helpful to the purchaser and advantageous taxwise to the seller.  What will the previous owner do after he or she sells the business? To guard against previous owner starting a similar business in the same market area, the prospective purchaser might insist that a non-competitive clause be included in the sales agreement. FINANCIAL CONDITION OF THE BUSINESS VALIDITY OF FINANCIAL STATEMENTS to verify with every record possible FINANCIAL PERFORMANCE OF THE BUSINESS Verify if the stats for future profit are as good as past, if they aren’t, it could still be a good buy if:  The current owner is incompetent or lacks knowledge about the industry, and the purchaser has the competence and knowledge to turn the business around.  The industry is, or will shortly be, in a growth position that might improve the firm’s profitability or resale value.  The major contributor to the firm's unprofitability is lack of capital leading to high interest costs, and the purchaser has the needed capital to inject into the business. CONDITION OF THE ASSETS LIQUID ASSETS (CASH AND INVESTMENTS) ACCOUNTS RECEIVABLE May be hard to collect INVENTORY: old damaged? BUILDING AND EQUIPMENT Are they still in good shape SYSTEMS AND PROCESSES are they good systems REAL ESTATE what is the lease, how much it cost, etc. GOODWILL QUALITY OF PERSONNEL EXTERNAL RELATIONSHIP –SUPPLIERS CUSTOMERS continue under what condition CONDITION OF THE RECORDS should have all record when you buy business DETERMINING THE PRICE OR VALUE OF A BUSINESS MARKET VALUE the price the purchaser and seller agree on, often based on data of other similar business sale ASSET VALUE BOOK VALUE list business at the net balance sheet value of its assets minus the values of its liabilities = low price REMPLACEMENT VALUE the replacement cost of the assets at their value =big price EARNING VALUE check for future profits, while calculating, take out exceptions of profit (too much or too little du to circumstance) to normalize the earnings CAPITALIZATION OF EARNINGS METHOD don’t need to know TIMES EARNINGS METHOD=price-earnings ratio: earnings multiplied by usually 4-5 COMBINATION METHODS Considering both earnings and assets ANALYTICAL METHOD consider adjusted net worth, past earning and future earning HISTORICAL METHOD use historical experience to use the relevant indicator

THE PURCHASE TRANSACTION Should get lawyer to do purchase agreement covering:  Price including principal and interest amount  Payment dates  Detailed list of assets included in purchase  Condition of purchase  Provisions for non-compliance with conditions  Collateral or security pledged in the transaction NEGOCIATING THE DEAL negotiate, fix price, lawyer close the deal, buyer pay 5-10% HISTORY AND BACKGROUND OF FRANCHISING Increased in 1960 du to problem in industry, now franchising in all industries WHAT IS FRANCHISING? A voluntary chain of individually owned business, Franchisor loves capital and stable motivated workforce, franchisee love the assistance MANUFACTURER-DIRECTED FRANCHISE give right to sell the product, geographically exclusive and no initial fee WHOLESALER-RETAILER-DIRECTED FRANCHISE don,t need to understand FRANCHISING COMPANY one company that become franchisor ADVANTAGES OF FRANCHISING PROVEN MARKET FOR THE PRODUCT OF SERVICE SERVICES THE FRANCHISOR MAY PROVIDE SELECTION OF LOCATION assistance in selection PURCHASE OR CONSTRUCTION OF SITE, BUILDINGS, AND EQUIPMENT PROVISION OF FI...