How to start a business in Canada: The ultimate guide

Business idea

Before you start spending money to set up your company, you need to ensure your business idea has the potential to be successful. The competition is fierce. Take the time to answer these questions.

• How will your company stand out from the crowd?
• Who are your target customers?
• How much money will you need and where will you get it?

If you take some time to research your idea, it will pay huge dividends down the road. A generative AI tool like ChatGPT or CoPilot can be useful in supplementing your research, as long as you review the output with a critical eye and avoid entering any personal information.

Start with market research

To find a profitable niche, start with some initial market research. This will allow you to identify your target customers and understand their needs and desires. Familiarize yourself with the competition and pinpoint market gaps your company can fill.

Your goal is to find the right product-market fit. You’re looking for the sweet spot where you can attract customers and turn them into advocates for your company.

You can check out Statistics Canada’s Small Business Hub. It offers resources to help existing and aspiring entrepreneurs plan and manage their enterprises.

Think about financing

This is also the time to start thinking about where you’re going to find the money you need to start and run your business. Here, there are more possibilities than ever before, but you must make sure the one you pick fits your ambitions. There is more information on financing your company in this article.

Find a mentor

Several steps are involved in launching your company. It’s a good idea to find a mentor with deep business experience. If you are between 18 and 39, Futurpreneur Canada can also assist you in finding a mentor.

Types of business structures

The next step is to select a structure for your new company. In Canada, there are three common types of business structures, each with its own pros and cons.

Sole proprietorship

A sole proprietorship is quite informal and easily created. It’s the most common structure chosen by new entrepreneurs. In this structure, the business and the operator are the same in the eyes of law and tax authorities. The downside is that the owner is personally liable for all functions and debts of the business.

Partnership

A partnership is like a sole proprietorship, but instead of one proprietor, there are two or more. As with a sole proprietorship, there is no legal structure for a partnership. However, partners usually sign some type of contract to govern the sharing of revenues, expenses, and tasks.

Corporation

A corporation is a legal entity that is separate from its owners. When you incorporate this type of business, you create ownership shares. Those shares produce a taxation and legal distance between the company and its shareholders. This has tax advantages for the owners, provides some liability protection from the corporation’s debts, and offers some measure of protection for a company’s name. However, setting up a corporation involves initial and ongoing costs for legal and accounting fees.

Pros and cons of business structures

Here’s a summary of the pros and cons of the three most common business structures.

To register as a corporation, you will need to take the following steps:

• Incorporate your business through federal incorporation or provincial/territorial incorporation.
• Get a federal business number and corporation income tax account from the Canada Revenue Agency (CRA).
• Register as an extra-provincial or extra-territorial corporation in all other Canadian jurisdictions where you plan to do business.

Taxes and start-ups

You will have to register for GST/HST if these situations apply:

• You provide taxable property and services in Canada.
• Your total taxable revenues exceed $30,000 in any single calendar quarter or in four consecutive calendar quarters.

More details are available on the Canada Revenue Agency’s website.

You may also need to pay income tax for the profits you earn. You will need to complete a tax return at the end of your first year of activity to determine how much tax you owe.

Income tax laws vary by province and territory and at the federal level. Consider hiring a professional accountant to help you complete your annual tax return.

The Canada Revenue Agency offers a free tax help service to small business owners and self-employed individuals to help them understand their business tax obligations.

Choose a business name

Choose your company name with care. After all, it's often your company name that creates a first impression on customers. The name must be accurate, catchy and, most importantly, available.

Selecting a name for your business is not a task to be taken lightly. In fact, it may prove more difficult than you expect.

This is another area where generative AI could be useful by helping you brainstorm ideas. If you find something you really like, you’ll need to verify whether any other company has already trademarked that name.

Ask yourself these questions.

• Does it bring out the attributes of my products or services? Can it be easily remembered?
• Is it unique and distinctive?

By law, the name can't be the same as, or very similar to an existing corporate name or trademark. So, you need to do a careful search of existing business names before selecting one.

Most companies need to register their business name with the government. However, you generally do not need to register a sole proprietorship if it operates under your own legal name and personal bank account.

You’ll also need to choose an available domain name so that your customers can find you online.

Obtaining a business licence

Depending on the type of company, you may need permits or licences. To find out, try searching on this site or contacting your province, territory and/or local municipality.

Intellectual property protection

You may need to protect your ideas or inventions from being copied. Learn about intellectual property protection. Check out the website of the Canadian Intellectual Property Office (CIPO) for more information.

Put together a business plan

You’ve taken several steps and are well on your way to starting a business. Now, you must write a business plan. This is the document where you will describe your vision for the business and outline in detail how you’ll achieve that vision.

Your business plan should include the following elements.

Market research—How do your products and brand image compare to the existing market?

Executive summary—An overview of your business plan.

Company profile and mission: Your products and services, the market you will be serving and trends in your industry.

Sales and marketing plan—Your target customers and how you intend to market and sell to them. This section also provides information on pricing and distribution.

Operations plan—Your location, equipment and machinery, production planning, customer interactions, research and development.

Human resources plan—The number of employees and what policies you will have in place for them. Short-term and long-term plans for recruitment, training and retention of workers.

Action plan—A timetable for achieving specific milestones in starting up and running your business.

Financial plan—Key financial information, including projected revenues, expenses, costs of goods, cash flow and a budget for two years, but mostly focused on the first year.

If possible, bring this information together in one document. This will give you a roadmap for building your business. You can also provide this document to investors and lenders to make the case for financing your company.

BDC's article How to write an effective business plan provides more information on the key elements of a plan. You can also read our article Common mistakes when building your business plan

You can use BDC’s free business plan template to guide you as you write your plan.

Prepare an elevator pitch

Apart from your business plan, prepare an elevator pitch. It’s a short and compelling description of your business that can be delivered in 60 to 90 seconds.

Not everyone will have the time or the interest to read your business plan. You need to be able to promote your business in a flash. That way, you’ll be able to pitch your business with ease when you come across investors, lenders, partners and customers.

Finance your new business

Many entrepreneurs start out by bootstrapping their businesses, meaning they use only their own money to finance their company. However, eventually, most growing businesses will want to find outside financing.

Getting financing is a huge milestone in the life of a new company. There are two broad categories of financing—debt and equity.

Debt financing means you are borrowing money from someone that will have to be repaid. This type of financing includes loans from financial institutions and personal loans. You’ll pay interest on the money you borrow and repay the loan in regular, usually monthly, instalments.

Equity financing refers to investments made in return for a share of the ownership of your business. You don’t have to repay equity investors, in other words, the people who buy the shares. However, equity investors will likely want to be involved in decision-making. Equity financing includes money from angel investors and venture capitalists.

Main sources of financing for start-ups

Personal investment

When starting a business, your first investor should be yourself. You can invest your own money, and/or put up your assets as collateral. This shows investors and bankers you have a long-term commitment to your business and are ready to share risk with them.

Love money

Love money comes from your loved ones, for example, a spouse, your parents, family or friends. Investors and bankers also call it patient capital. That means it’s money you can pay back later as your business grows and becomes more profitable. When borrowing love money, remember that a business relationship with family or friends should never be taken lightly.

Business loans

Loans from banks and other financial institutions are the most common source of funding for small and medium-sized businesses.

New businesses that need small loans can now get an online loan. Many lenders now assess risk using algorithms and artificial intelligence. They will ask you for such information as your personal credit history, income, home ownership and current debt. That information is then compared with information from thousands of other borrowers to decide whether your credit profile qualifies you for a loan.

Specialized organizations such as Futurpreneur are also a good place to get your first business loan.

Credit cards and lines of credit

Many new entrepreneurs use personal credit cards and lines of credit to finance their businesses. These are easy sources of cash, and their use is often encouraged by financial institutions. However, you should be careful. They often carry high, variable interest rates that can drain your company’s cash flow. Term loans are often a better option because they carry lower rates and your payments are fixed.

Angel investors

Angel investors are wealthy individuals or retired company executives who invest in start-ups. They are often leaders in their field. Angel investors can also share their experience, network of contacts and technical and/or management knowledge. You can find angel investors through such organizations as the National Angel Capital Organization.

Venture capital

Venture capitalists usually look for high-tech businesses and companies with strong growth potential. They are interested in sectors such as information technology, telecommunications, and biotechnology. Venture capitalists require involvement in the company to help it carry out a promising but high-risk project. In exchange, the investment must yield a high return.

Grants and subsidies

Several types of grants and subsidies can help in starting up your business. When you receive a grant, you do not have to repay the funds. However, programs are limited, and competition is fierce.

Use Canada’s Business Benefits Finder to see what kind of grants could be right for you.

Business incubators

Business incubators or accelerators are not strictly a source of funding. Still, they can be a great place to network and access resources when starting up a business. Most incubators and accelerators target the high-tech sector. However, there are also local economic development incubators that assist start-ups in more traditional sectors.

Pros and cons of each source of financing for start-ups

Here’s a video (in French) that summarizes the information on how to get financing for a start-up:

Choose a commercial space

If you choose to set up your business in a commercial space, you’ll have to decide whether to buy or rent. In addition, you’ll need to assess how much you can afford to pay.

For some types of businesses, such as retailers, location will obviously be a key consideration. For others, like tech start-ups, it will be less important. Note that more and more companies are choosing to work remotely rather than having a commercial space.

Also consider whether it will be easy for customers, staff and suppliers to access your premises. In addition, assess whether the premises you’ve chosen need to be upgraded to run your business.

If you are renting space, you will probably have to sign a commercial lease. Consult your lawyer before signing the lease to ensure you understand all its clauses.

Finally, you’ll have to insure your assets, regardless of whether you rent or buy your premises.

Here’s a short video (in French) that provides concrete examples to help you decide whether to buy or rent commercial space:

Hire employees

As your company grows, you will likely need to hire employees. This could be one of the most challenging tasks as an entrepreneur. It’s particularly true in times of labour shortages.

Check out our study on labour shortages to learn more about why they are happening. You’ll learn four strategies you can use to find and keep the best workers. You can also visit BDC’s employees page for a wealth of content on recruiting, retaining and managing employees.

How to hire your first employee

Resist the temptation to rush the hiring process because you have an immediate need to fill a position. Instead, take the time to do a thorough job. That way, you’ll avoid the headaches and wasted time that could result from hiring the wrong person. Here are some tips on hiring employees.

• Write clear job descriptions and provide as detailed as possible to attract the right applicants.
• Post the position on job boards, social media and internally.
• Select the best applicants to call in for an interview.
• Make a checklist of required skills, personal qualities and education so you can grade the applicants.
• Prepare interview questions that will delve into an applicant’s experience and background.
• Evaluate precisely how that person would fit into your organization, perform their tasks and fulfill their duties.
• Avoid personal questions and questions that are discriminatory (i.e., those that touch on age, marital/family status, race, religion, sexual orientation, etc.)
• Consider asking candidates to provide an example of the kind of work they would do in your company.
• Using your checklist, ask yourself how well each candidate meets your requirements and rank them.
• Once you’ve chosen a candidate, ask for references and check them.
• When you’ve made a final selection, draw up a letter of offer. The letter should cover such items as compensation, working hours, vacation and benefits.
• Once the candidate has been hired, you’ll need to make the proper payroll deductions for the Canada Pension Plan, Employment Insurance as well as federal, provincial or territorial income taxes.

Grow your business

Starting up your business is only the beginning of your business journey. Your first year will be one of your most challenging. In fact, it’s when many businesses fail.

You will have to monitor your day-to-day operations and plan for your company’s future growth. The difference between the two is often described as working in the business versus working on business.

Successful companies are characterized by their ability to manage cash flow. You need to forecast inflows and outflows to avoid cash crunches. Use a cash flow calculator to do so.

You should also learn how to manage your schedule so that you’re making the best use of your time. It’s just as important as learning how to manage your cash flow.

Visit our manage your growth hub for more tips on how best to move your business forward in the early months.