How to start a small business without losing all your money

Advice to get your small business—and yourself—on safe financial footing

Launching a business is a risky financial venture, but it doesn’t have to be all or nothing. Paul Savage, a chartered financial analyst and certified business intermediary with Pacific Business Brokers Inc., and John Nicola, CEO of Nicola Wealth Management Ltd., share some tips for small business owners struggling to find their way financially.

Diversifying Your Investments

As the old adage goes, don’t put all your eggs in one basket. Business owners are often tempted to eschew lower-risk investments with mediocre returns, instead investing more in their business where they control the risk and reap higher payoffs, says Savage. However, he cautions that businesses are inherently unpredictable. “Even large, well-established businesses have very tough times.”


1. Reserve the company name with the corporate registry:

2. Enter into a corporation agreement

3. Establish the company’s articles (rules that govern the company’s conduct)

4. File an incorporation application with the corporate registry:

Splitting your investments among a combination of assets outside of your company—real estate and financial assets such as tax-free savings accounts, bonds and mutual funds—protects you from having one unexpected blow put you in financial hardship.

“Other investments need to complement, not compete with, the returns on the business,” says Nicola. “Don’t compare the returns to your business returns. They should be relatively liquid.”

As soon as your business provides cash flow back to you, look for outside investments. For a young business person, Nicola recommends “some combination of a tax-free savings account and a corporate investment account.”

The Power of Incorporation

Savage advocates for incorporating your business early on in its life cycle for “the benefits of additional credibility and reduction of personal liability.” Separating your personal and business life puts you at less financial risk and offers tax incentives. “If you’re incorporated, it’s easier to get financing,” explains Savage.

Nicola agrees that incorporating early has its benefits, and advises to wait until the business has annual profits of between $70,000 and $100,000. “Incorporating gives you the benefit of only paying 13.5 per cent tax on the profits,” he says. “When you need to reinvest money in the business, you haven’t lost a lot of it to taxes. That part’s important because every business that’s growing needs more money to run the business.”

Succession Planning

“Always be ready to sell. Always be ready to exit from your business,” advises Savage, adding that succession planning should start when your business launches. “I’m a really big proponent of people recognizing that exiting the business may not be at a time of their choosing, so they need to be ready.” That means keeping records up-to-date, having well-documented policies and procedures, and getting a business valuation.

Nicola, meanwhile, acknowledges that most owners aim to sell their business upon retirement. He recommends starting succession planning within five to 10 years of when you expect to exit the business. “It’s a lot easier to get into a business than it is to get out of a business,” he says. For all entrepreneurs, Nicola says a shareholder plan between partners is essential to define the terms when someone wants out. “They need to have a road map that explains how that’s going to work, because eventually it is going to happen.”

According to Savage, “there are lots of unsolicited offers being given to business owners, especially from people who are looking to facilitate immigration by buying a business. People need to be ready.”