Starting a Business?

Starting a Business? Peter Keeshan Megan Thomson Bryan Chen

Agenda • Types of Business: Product or Service • Types of Entities: Sole Proprietary, Partnership & Inc. • Types of Financing: Debt vs Equity • Common Pitfalls: Lesson’s Learned

Getting Started You have a idea now what? Are you cut out to be an entrepreneur ? What’s your risk profile?

Product or Service Product: More capital intensive Intellectual property [patents needed?] Service: Liability issues P.Eng Consulting: P.Eng ---> C.O.A -->Consultant Engineer

Sole Proprietorship • Pros • Unincorporated business established and run by a single individual • Easiest form of business to set up • No agreements or paperwork required • Reap all the benefits • Cons • Liability • Creditors can seize personal assets • Personal taxation laws still apply • Suffer all the pain

Partnerships • Pros • Share the challenges • No contracts or registration • Limited partnerships can limit liability • No separate tax filing • Simple dissolution • Cons • Personally liable (except for limited partnerships) • No new partners can be introduced without consent from all existing partners • Decisions not as easily made

Corporation • Pros • Liability is limited to the initial share purchase • Decisions by majority, not unanimity • Could continue in perpetuity • Cons • More work and costs involved • Outside investment limited by size of firm • May be required to pledge personal property as collateral to secure • Tax return for the corporation

Funding by Debt • Mostly Charter Banks, but also include other type of financing [i.e. Leasing]. • Usually require a form of secured asset as a guarantee. • ‘Hands off’ Business Partner • Debt cheaper than equity. Some Interest is tax deductible [EBIT] • Business plan: Show how you will pay off debt. • Good for product or more capital intensive service

Funding (Private Equity) • Friends and Family: “Love Money” • Easily accessible • Off balance sheet liability • Good for low start up businesses: Consulting • Forgiving payment schedule

Venture Capital Funding • Equity Stake in the company - vested interest in company’s success. • ‘Hands-on’ Business Partner - use of contacts/networks • Looking for how to ‘exit’ and get return: IPO, Sell • Good for starting up a capital intensive product; Knowledge Based Industries, w/ R&D, high growth potential.

Angel Investors & Government Funding • Angel Investor • Similar to VC, but a individual rather than a Firm • Equity Stake in the company - vested interest in company’s success. Smaller investment. • Government • Grant’s, Loans and VC • Government issues: Environmental concerns [i.e. green energy, Kyoto]

Common Pitfalls Underestimating start-up costs. By the time you incorporate, register business, get started. Expensive • Include your salary! • Rule of thumb what you have budgeted + 1/2

Common Pitfalls Not knowing your sales cycle: How long will it be before you start generating cash flow? Payment only comes after you have gained the business [i.e. net 30 days] Some Sales Cycles can last 12 months or more.

Common Pitfalls • Know who you are doing business with • Friends don’t always make good business partners • Some customers you don’t want. • Demanding customers • Customers that don’t pay. • Exhausting “warm” leads before doing any other business will not give you a realistic picture of the need of your product/service

Common Pitfalls • Self-discipline to execute • Plan – execute – measure - repeat • Business is not as precise as engineering • Intelligence + confidence • Leap of faith

Parting Thoughts • The surest sign of madness is doing the same thing but expecting different results • Change + Action • Ready to start a business? • Only you can answer…

Helpful Link/Resources Business Development Canada: www.bdc.ca Royal Bank : www.rbc.ca Canada Service Business Centers: www.bsa.cbsc.org Contact Information: Peter Keeshan - pkeeshan02@schulich.yorku.ca Megan Thomson - mthomson02@schulich.yorku.ca Bryan Chen - bchen02@schulich.yorku.ca

Questions?

Starting a Business?