Why you need a business plan?
A business plan is a written document that describes your business. It covers objectives, strategies, sales, marketing and financial forecasts.
A business plan helps you to:
- clarify your business idea
- spot potential problems
- set out your goals
- measure your progress
It can also help to convince customers, suppliers and potential employees to support you.
Five steps to think about when setting up a business.
Research your market - identify potential customers. Talk to them and find out if your idea is meeting a real need.
Develop and plan - test your product or service with real customers, make changes, and
test it again. Keep doing this until you’re sure there’s a demand for
Find partners and suppliers - think about who you’re going to work with to develop and sell your idea.
Set up your business - work out which legal structure is right for you, and whether you want to sell shares.
Get funding - explore different sources of business finance, from bank loans to government-backed schemes.
Decide on a Business Structure
When you have determined the viability of your business concept and you're ready to set up your business, one of the first steps is to register your name. But before doing so, you must decide if you're going to be a sole proprietorship, a partnership, a corporation, or a society. Each has important implications for liability, taxation, and succession planning.
There are a few things to consider when setting up your business structure. The most common business structures in British Columbia include:
- Sole proprietorship. If you plan to operate the business on your own, either under a business name or your own name
- Partnership. If you plan to operate the business with one or more partners
- Corporation. If you plan to operate the business as a separate legal entity, separate from yourself and your personal assets
- Society. If you plan to operate a not-for-profit organization, in which any funds or profits will be used only for the society's purposes
- Co-operative. If you plan to operate a business that is owned and democratically controlled by the people who use and benefit from your services
When you operate your business under a name other than your own, you need to register that name because you will require proof of business registration to open bank accounts, apply for loans, and many other business start-up and business building activities.
Business registration is a two-step process:
1. Submit your business name request. The first step in registering your business is the approval of your business name by submitting your name request either online at B.C Registry Services or in person at Small Business BC.
Name approval prevents the use of names that are so similar as to confuse or mislead people, and it provides a record allowing the public to determine ownership of the company. Names are checked against the list of registered corporations in British Columbia to ensure there is no duplication. Under the Partnership Act, proprietorship or partnership (firm) names are not protected, meaning there could be multiple companies with the same name.
Note: If you operate under your own personal name as a sole proprietor (self-employed person or independent contractor), you do not have to register your business. You can simply go ahead and register for a harmonized sales tax (HST) account, if applicable, and for your municipal business licence. In this case, the legal name of your business is your personal name.
Consider Registering for EI Special Benefits for Self-Employed People
Under the new Fairness for the Self-Employed Act, you can now choose to register for the Employment Insurance Special Benefits for Self-Employed People.
The four types of special benefits are:
- Maternity benefits
- Parental benefits
- Sickness benefits
- Compassionate care benefits
Incorporated legal forms
The Limited Company is the most common legal form in use for running a business. Companies are ‘incorporated’ to form an entity with a separate legal personality. This means that the organisation can do business and enter into contracts in its own name. On incorporation under the Companies Act 2006, a company is required to have two constitutional documents: a Memorandum, which records the fact that the initial members (the subscribers) wish to form a company and agree to become its members. The Memorandum cannot be amended; and Articles of Association – often just referred to as the Articles – which are essentially a contract between the company and its members, setting the legally binding rules for the company, including the framework for decisions, ownership and control. The Companies Act 2006 provides significant flexibility to draw up articles to suit the specific needs of the company, provided it acts within the law. A Limited Company is owned by its members – those who have invested in the business – and as the name suggests they enjoy limited liability – i.e. the company’s finances are separate from the personal finances of their owners and as a general rule creditors of the business may only pursue the company’s assets to settle a debt. The personal assets of the owners are not at risk. There are two mechanisms for company membership: Company Limited by Shares Most companies fall into category. Members each own one or more shares in the company and are therefore known as shareholders. Shareholders’ limited liability means that they only stand to lose what they have already invested or committed to invest (amounts unpaid on shares). Company Limited by Guarantee Members of the company give a guarantee to pay a set sum if the company should go into liquidation.
A company must have at least one member. In a Company Limited by Shares, each share usually has a voting right attached to it so the members are able to vote on important decisions affecting the company. The arrangement is normally one share one vote, although many companies will create different classes of share with different voting rights attached. In a Company Limited by Guarantee the arrangement is usually one member one vote (OMOV).
Day to day management of a company is nominally separate from its ownership and undertaken by a director or board of directors, with the core principle that they act in the interest of the company and its members. However, directors may also be members, thus the simplest form of Limited Company is a single member who owns the whole company and is also its sole director. A company must have at least one director (public companies described below must have two) and at least one director must be a real person.
In a Company Limited by Guarantee, finance comes from the members, from loans or from profits retained in the business as working capital. A Company Limited by Shares can also raise capital from shareholders in return for a stake in the business – any profits from the business are usually distributed to shareholders in the form of dividends, apart from profits retained in the business as working capital. Limited Companies have a greater capacity to finance themselves with loans than unincorporated businesses, as they can use their assets as security for loans, creating a ‘charge’ over the company’s assets. These charges are registered at Companies House, providing transparency about the extent of a company’s secured credit. Lenders, including banks and building societies will therefore typically make incorporation a condition of providing a business loan. The Limited Company form is subject to stricter regulatory requirements than unincorporated forms: greater accountability and transparency is the price to pay for the benefit of limited liability. Accountability is both to the company’s shareholders and also to the public who may wish to deal with the business. Companies are registered at Companies House, and it is the directors’ responsibility to maintain the company’s public records – including annual accounts and an annual return about the company – and to file them at Companies House. They must notify Companies House of changes in the structure and managementof the business. If a company has any taxable income or profits, it must tell HMRC that it exists and is liable to corporation tax. Companies liable to corporation tax must make annual returns to HMRC.
A Company Limited by Shares is either a Private Limited Company(Ltd) or a Public Limited Company (Plc). The key difference is that the Public Limited Company is permitted to offer shares for sale to the public. The Private Limited Company is the most common legal form used by the vast majority of businesses – ranging from a business with a single shareholder director to large companies which have attracted large investments of private equity capital. Public Limited Companies usually begin life as Private Limited Companies but later go public for the advantage that this provides in raising finance. A Public Limited Company must have at least two directors and a qualified company secretary. It must have issued shares to the public to a value of at least £50,000. Public companies attract stricter regulation than private companies to ensure transparency and protection for the public investor, who is often more separated fromthe management of the company than in a private company. A Public Limited Company may also become a Listed Company by floating its shares on a recognised stock exchange, creating a wider market for its shares. Listed companies are subject to even greater regulatory requirements in the form of listing rules and information disclosure requirements put in place to ensure the market works and maintains its integrity.