Since 2006, October has been Small Business Month in Canada. So as we prepare once again to celebrate the small and medium-sized businesses that make such a big contribution to our economy, here are a few pointers that you might find useful if you happen to be thinking about starting a business yourself.
About 260 companies are created in Canada every day, for a total of around 95,000 per year. What are the key factors that will enable these businesses to develop and flourish?
Startup Canada’s annual survey offers some interesting information about this. As we can see below, even though funding is undoubtedly the most crucial factor for a new entrepreneur, non-financial support in the form of help with business planning, mentorship and advice, for instance, would seem equally essential. For example, 84% of the entrepreneurs surveyed said that they had to do over 100 hours of research in order to understand all the components of their business plan.
Which raises the question: where could you go to get the necessary help?
A good place to start would be with someone you already know: your financial advisor. In fact, a business project could have a substantial impact on the game plan you had set up: retirement savings, education savings, insurance and financial security, and so on. Your advisor could help you measure your project’s impact on these other pillars of your financial situation and identify any changes that could optimize your chances of success.
Your advisor, whose clients probably include other entrepreneurs, could also help you find support in the form of coaching or mentorship, for example.
Another possibility for boosting early growth could be a business incubator. Incubators allow startups to move into their premises and share administrative, logistical and technical resources. A company might stay in an incubator for several years before going out on its own. This solution would be a way of minimizing expenses in the early years while gaining access to valuable resources.
Financing: from family members to venture capitalists
Financing for a new business generally goes through several stages, each one intended to provide the business with what it needs to cover its costs (starting with staff salaries) until the next stage. Typically, the sequence of steps would be seed, startup, mid-stage, growth and expansion.
Here are the main sources of support that an entrepreneur might turn to during this long journey:
- Friends and family (“love money”)
At the start, entrepreneurs won’t necessarily have enough of a track record to obtain outside financing: they might even be expected to show certain numbers in terms of existing clients and revenue to provide a form of validation for lenders or investors. So to begin with, they would be putting in their own time and money (many entrepreneurs don’t draw a salary for several years), or asking friends and family for a helping hand. This “love money” is very often what allows them to get a business off the ground.
- Loans and grants
Governments and financial institutions have various new-business assistance measures in the form of grants, loans and even educational resources such as the DMZ’s Launchpad for entrepreneurs, powered by Desjardins. For government-sponsored support programs, a good place to start is the Business Benefits Finder, an interactive service created by the Government of Canada.
Crowdfunding has been around since the late 1990s, but its popularity has soared in the past 15 years thanks to the emergence of powerful web-based platforms. This approach enables businesses to raise funds by collecting small individual contributions from a large number of donors who will receive a share of the profits, a return in the form of interest or, most often, a reward or privilege, such as free or discounted priority access to the new product developed by the company.
“Angel investors,” or “business angels” are wealthy individuals, often current or former entrepreneurs themselves, who take a stake in businesses at the seed or startup stage by investing a relatively small amount. Angels also strive to give the entrepreneur the benefit of their advice and networks. In exchange for this effort and the risk they’re taking, they usually expect to have a direct influence on decisions or even sit on the board of directors.
- Venture capital
Venture capital firms invest in businesses at various stages of the funding cycle, taking a gamble that a given company will be able to bring to market a solution, service or product that will stand out. Typically, these high-risk investments will be directed to companies that are developing cutting-edge technologies in fields such as medicine, biopharmaceuticals, the environment or finance. So this is not a solution for every company, especially given that many entrepreneurs would rather not to give up corporate control. But entrepreneurs with big ideas and a long view will often turn to this growth lever.
Being aware of the risks
The founders of new companies usually set their sights ambitiously high, but some might find that their enthusiasm outweighs their resources. As the following graph shows, about one out of three businesses won’t make it to five years. And within 10 years, half of them will be gone.
It would seem that starting a business might require courage along with financial resources and, above all, a support network that can open doors and provide assistance.
Don’t hesitate to confer with your advisor before starting down this path.
The followng sources were used to prepare this article:
BDC, “7 sources of start-up financing , You will be redirected to an external website..”
DMZ, “Launchpad for Entrepreneurs powered by Desjardins , You will be redirected to an external website..”
Espace CDPQ, “Venture capital investors working together , You will be redirected to an external website..”
Fundsquire, “Business Startup Statistics Canada (2022 Update) , You will be redirected to an external website..”
Government of Canada, “Business Benefits Finder , You will be redirected to an external website..”
Startup Canada, “2021 Startup Canada Census Report , You will be redirected to an external website..”
Small Business Summit, “Small Business Summit 2022 , You will be redirected to an external website..”