The Path to Business Ownership

The path to business ownership – an Accountant’s viewpoint 

 

Part 2

In last month’s article, we discussed the merits of purchasing an existing business.  As outlined in the article, generally the most significant benefit of purchasing an existing business is the ability to generate cash flow quickly due to inheriting an established customer base.

However, let’s say the opportunity to purchase an existing business is not available, or the vendor is asking too much for the assets and goodwill.  Perhaps you are purposely looking for opportunities in an unfilled marketplace.  What are your options now?

You have a couple choices.  First, you can explore the acquisition of a franchise, although many find that to be cost prohibitive or not the type of business structure they wish to start with. If a franchise doesn’t appear to be the right fit for you, then you may need to create your own start-up company. Let’s take a look at what starting your own company entails and review some important issues for you to consider.

There are many different definitions on the internet regarding start-up companies. I like to define a start-up business as an idea that you put into action. You could also think of it is as the initial stage of a business model in which you plan to define your product/service and establish a customer base from which to grow.

I’ve seen many start-up businesses throughout my career, and they all have one thing in common – the fulfillment of a dream.  I do believe this “dream” is important for all entrepreneurs and business owners, but passion is also mandatory because this will likely be the most stressful endeavour you embark upon.  It will test you financially and emotionally, but the rewards can be immensely fulfilling.

Why is starting a business so stressful?

  1. There could be a lack of market information available to study, and as a result, many entrepreneurs are forced to rely on their gut instincts for several of the key initial decisions. Although gut instinct, passion, and vision are important, one should complement these with proper market research.  Contact your local economic development office and the local Chamber of Commerce for market and demographic data. Find out if other businesses are already providing the service(s)/product(s) you wish to and whether there is enough demand for you to enter and succeed in the market.

 

  1. Financing a start-up business is very difficult. Your business doesn’t have a history of earnings, therefore, if you do obtain financing, it will likely be in the form of a small line of credit provided you have sufficient personal assets to secure against it. You may have more success with financing if the funds are for the acquisition of assets, such as land or buildings, as lenders would have something tangible to secure the loan against.  However, this will be limited by your perceived ability to service the debt. This said, many entrepreneurs rely on their own savings and/or loans from people close to them. For this reason, most start-up companies tend to begin small and steadily develop their customer base and cash flow before expanding to a business model more in line with the entrepreneur’s dream.

 

Next month, we will continue with this topic and look at some of the other important issues and rewards associated with a start-up business.

 

jonathan-mcgraw-bdoArticle provided by:

Jonathon (Tug) McGraw, BCOMM, CPA, CA

BDO Canada LLP

Jonathan can be reached at: jmcgraw@bdo.ca

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