It’s the entrepreneurs’ lament. For want of a little start-up financing, the world could be missing out on the next, better mousetrap, ultra computer or low-cost, non-polluting fuel source.
So, how does someone with a good business idea find the money he needs to get started?
“Before you leave your job to launch that new business or idea, set up a personal line of credit with your bank,” says chartered accountant Daryl Heinsohn, a partner with Laberge Venne & Partners Professional Corporation in Sudbury, Ont. “It’s a lot easier to get a favourable decision about financing when you’re employed and have a regular income.”
Depending on your circumstances and your idea, a line of credit may be enough to start. But if you still need to ask the bank for a business loan, do some serious homework first.
“Start by putting together a business plan,” says chartered accountant Daryle G. Moffatt, vice-president, operations, with Probyn & Company in Toronto. “Many banks have outlines for business plans on their websites, so don’t reinvent the wheel. Spell out what you’re planning to do, where you want the business to go and the costs associated with it. Explain how the company will be structured. Will you be self-employed or set up a corporation? Identify the key players. Will you have partners? Is it a joint venture?”
“Banks can be a tough sell for business startups,” says Heinsohn in Sudbury. “Aside from term loans, generally don’t count on financing from them for two or three years without a personal guarantee. In addition, they’ll definitely want to see that you have some of your own money in the venture. I tell clients to be prepared to be turned down, but don’t take it personally. Work with your banker and build up rapport.
“There are a few other sources of money,” Heinsohn says, “but not many grants or subsidies these days. However, if your business is conducting research and development, you may be eligible for certain federal and provincial incentives.”
Consider, too, the Business Development Bank of Canada, a federally owned bank that works with small to medium-sized business. “They can sometimes offer flexibility that exceeds what traditional banks can accommodate,” Heinsohn says.
Friends and family can also be a source of help, but there can be major pitfalls involved in those types of deals. Loans that aren’t repaid can cause ill will. Think seriously before you risk damaging any relationships.
Whoever you decide to approach for money, both Moffatt and Heinsohn agree that
your first call should be to a chartered accountant. They will review your business plan and help determine if that idea of yours really has legs. There’s no better substitute for the expert advice they can give you about how to structure the business and best prepare yourself for that meeting with potential funders.
Written by the Institute of Chartered Accountants of Ontario.
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