HOW TO START A SMALL BUSINESS IN NEWFOUNDLAND

Small businesses make up almost 98 per cent of all Canadian enterprises. Small businesses in Newfoundland and Labrador account for close to 40 per cent of all employment. Even large corporations depend on the services and products of small businesses. Keep in mind that all large businesses were once small businesses. Some people run full-time businesses from their homes. In fact, one-in-four Canadian households operate some kind of home-based business. Home-based employment is a common and logical work style in rural Newfoundland and Labrador. Overheads tend to be low as there are generally no new premises to buy or rent. Hours are flexible and new business ideas can be tested on a small scale. It is often a way to learn about business with very little capital and start an enterprise that is almost debt free.

Perhaps you have wondered about starting or owning a small business and did not know where to begin. You can find out bellow what basic steps are necessary to start or own a business, the planning you need to do and the kind of personality you need. Personality? Yes, the personal qualities you bring to business are just as important as intelligence and education. Successful business people tend to be hard-working, confident, optimistic, self-driven people who are able to overcome obstacles. Some post-secondary education can help, but it’s not essential. Perhaps the single most important quality to succeed in business is a desire to work for yourself and succeed. While you can learn a great deal about business subjects in school, it’s no substitute for becoming involved in the day-to-day management of a business. Many people start part-time businesses out of their homes and gradually acquire their business skills. After reading this handbook you will have a better idea of the steps necessary to start a business. If you need more information, or would like to discuss your business ideas, call your local Department of Innovation, Trade and Rural Development office and speak to an Economic Development Officer. Also, check out the department’s website at www.gov.nl.ca/intrd.

Step 1: Assess Yourself:

So, you’re thinking about starting a small business. It could be one of the most important decisions you’ll ever make. Before you proceed, you should consider the steps involved in launching your own business. This publication is designed to help you through the process. Entrepreneurship offers many rewards, including the freedom of being your own boss, the personal satisfaction of building a prosperous business and the chance to earn an income that is limited only by your choices, skill and determination. There are, however, many risks. Many would-be entrepreneurs are not aware of the effort involved in starting and operating a small business. Many new ventures place heavy demands on your time, your family relationships and your finances. In addition, many small businesses fail within the first three years, and many require several years to return the entrepreneur’s original investment. That’s the bad news. The good news is that small business ownership offers you financial and decisionmaking independence. If your venture succeeds, you gain job security and the opportunity to provide employment to others.

Step 2: Identify a Business Opportunity:

Most successful businesses start with a good idea. This idea may be your own or may be drawn from a number of available resources, including:

* Business contacts and acquaintances.

* Business magazines and newspapers which often contain business success stories, how-to information for would-be small business owners and lists of startup as well as business purchase opportunities.

* Industry publications that report on trends and developments.

* Trade shows.

* Government departments and agencies are often committed to increasing the volume of government purchasing in their area of operation.

* Canada Business is a large network of business information centres that are located in every province and territory. They provide access to books (free of charge by mail) and periodicals on many aspects of business as well as online access to hundreds of databases and tools.

Step 3: Prepare a Business Plan:

In Step 1, you learned whether you had the personal skills, abilities and drive to start a business. You must now evaluate your business idea. The most effective way to organize your thoughts and fully develop your business idea is for you to prepare a business plan. This plan will help you to think about all aspects of the business and may help you avoid costly oversights. The business plan also provides a basis for evaluating the viability of your proposal. Be thorough, accurate and concise as you work your way through the business plan elements described below. The elements do not have to be completed in order. Once a business plan is completed, it may be possible to further analyze your proposed operations. Market research should provide you with a range of prices that consumers will accept. Analysis of your costs will help you determine the cost of producing the product or service. You must determine accurately the cost of doing business. You cannot estimate sales until you can set prices and you cannot set prices until you know accurately what your costs are.

Step 4: Prepare a Marketing Plan:

Describe the product or service highlighting its benefits to the buyer and its unique or innovative features. Identify status of patent, trademark or other legal protection. Describe the type of customer to whom you are aiming your product or service, where they live and what benefits they seek. Determine the total number of potential customers in your market area and the number you can reasonably expect to become customers. Outline the potential growth in the market for your product or service and estimate your projected growth in market share. Market share may be based on total dollar sales or on unit sales. Identify and describe your direct and indirect competitors. Direct competitors will sell products or services which may substitute directly for your own. Indirect competitors will market products or services which may displace yours indirectly. For example, Pepsi TM competes directly with other carbonated soft drinks for market share. Indirect competition for Pepsi TM might include non-carbonated drinks, fruit juice, mineral water or milk. Compare your own proposed operation to your competitors and describe the relative ease or difficulty in entering the market.

Step 5: Finance Your Business:
TYPES OF BUSINESS FINANCING:

*Term Financing: Term financing is required to fund the purchase of business assets such as equipment, land and buildings.

*Equity Financing: Equity financing is the provision of funds for capital or operating expenses in exchange for a percentage of ownership interest in the business financed without any guaranteed return, but with the opportunity to share in the company’s profits.

*Working Capital: Working capital is money needed for everyday operations such as rent, utilities, wages and office supplies. Many working capital needs are funded by the cash surplus of a business. During startup, and at times when cash requirements outpace contributions from sales, there may not be enough cash on hand to cover the day-to-day operating needs. In this case, businesses may acquire working capital either by borrowing money for a short time at fixed interest rates and repayment schedules or by establishing a line of credit at a bank or other financial institution.

*Line of Credit: A line of credit may be extended to a company representing a sum of money to be used as the enterprise sees fit. The interest on a line of credit is computed only on the amount actually used.

*Other: In addition to banks and other financial institutions,there may be other sources offunding you can access. These include personal equity, family and friends (usually called love money), informal investors (called angels), venture capital companies (private firms that invest in high risk/high return ventures, usually by acquiring large shares of the business and providing management assistance), supplier credit, equity funding from its many sources, shareholders and government departments and agencies. An Economic Development Officer can discuss your funding needs with you and offer financial advice. For more information on assistance available in this province, contact your local Innovation, Trade and Rural Development office.

The Canada Small Business Financing Program has been helping small businesses with their financing needs for over 50 years. Under the program, the Government of Canada makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders.

MAIN OBJECTIVES:

-To help new businesses get started and established firms make improvements and expand

-To improve access to loans that would not otherwise be available to small businesses

-To stimulate economic growth and create jobs for Canadians

The program has assisted more than 142,000 businesses since 1999, with loans totalling about $1 billion each year.

ELIGIBILITY:

Small businesses or start-ups operating for profit in Canada, with gross annual revenues of $5 million or less.

Not eligible under this program are farming businesses (Agriculture and Agri-Food Canada has a similar program for the farming industry — for information, visit www.agr.gc.ca), not-for-profit organizations, or charitable and religious organizations.

AVAILABLE FINANCING:

Up to a maximum of $500,000 for any one borrower, of which no more than $350,000 can be used for purchasing leasehold improvements or improving leased property and purchasing or improving new or used equipment.

PROCESS OF APPLYING FOR LOAN:

Financial institutions deliver the program and are solely responsible for approving the loan.

Discuss your business needs with a financial officer at any bank, caisse populaire, or credit union in Canada. The financial officer will review your business proposal and make a decision on your loan application. Once the decision is made to offer financing under the program, the financial institution will disburse the funds and register the loan with Industry Canada. (Find a lender near you)

Loans can be used to finance the following costs:

-Purchase or improvement of land or buildings used for commercial purposes

-Purchase or improvement of new or used equipment

-Purchase of new or existing leasehold improvements, that is, renovations to a leased property by a tenant

For example, you can use a loan to finance:

Commercial vehicles, hotel or restaurant equipment, computer or telecommunications equipment and software, production equipment, admissible costs to buy a franchise.

You cannot use a loan to finance items such as:

Goodwill, working capital, inventories, franchise fees, research and development

COSTS:

The interest rate is determined by your financial institution and may be variable or fixed.

Variable rate: The maximum chargeable is the lender’s prime lending rate plus 3%. Fixed rate: The maximum chargeable is the lender’s single family residential mortgage rate for the term of the loan plus 3%.

A registration fee of 2% of the total amount loaned under the program must also be paid by the borrower to the lender. It can be financed as part of the loan. The registration fee and a portion of the interest are submitted to Industry Canada by the lender to help offset the costs of the program for the government.

TERMS OF FINANCING

Lenders are required to take security in the assets financed. Lenders also have the option to take an additional unsecured personal guarantee.

For more information, please contact your financial institution (Find a lender near you).

This program is administered by Small Business Financing Directorate.

Step 6: Insure Your Business:

There is a wide variety of insurance products tailored to the needs of small business. These include the standard insurance policies covering fire, theft and vandalism, which can offset a potentially serious loss of buildings, equipment  or inventories. It is likely that a lending institution will insist that adequate property insurance be carried as a condition of a loan. Specialized types of insurance are also available. For example, business liability insurance will help protect business operations against legal action. Certain important assets of the business, such as plate glass or expensive moulds, may be specifically insured against loss or damage. Business interruption insurance guarantees income during downtime. Plans which can guarantee a level of personal income in the event of temporary or permanent disability are widely available. Life insurance on key individuals in an organization minimizes the impact on the business in the event of death. Insurance coverage is often structured to fund buy/sell agreements among principal shareholders. Proceeds of the insurance policy are used to purchase the deceased person’s shares in the business from his or her estate, eliminating the possibility of those shares passing on to someone unacceptable to the surviving shareholders.

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PROBLEMS

Small businesses can encounter several problems related to Corporate social responsibility due to characteristics inherent in their construction. Owners of small businesses often participate heavily in the day-to-day operations of their companies. This results in a lack of time for the owner to coordinate socially responsible efforts. Additionally, a small business owner’s expertise often falls outside the realm of socially responsible practices contributing to a lack of participation. Small businesses also face a form of peer pressure from larger forces in their respective industries making it difficult to oppose and work against industry expectations. Furthermore, small businesses undergo stress from shareholder expectations. Because small businesses have more personal relationships with their patrons and local shareholders they must also be prepared to withstand closer scrutiny if they want to share in the benefits of committing to socially responsible practices or not.

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