Why Canadian Businesses Fail
By Kevin Bousquet
What would happen if you were given a key to a race car for which you had only the manual (a written plan), but you had no previous driving experience?
You take your new race car out on to the track and find yourself surrounded by other race car drivers on fast moving track. You try to follow the manual (your written plan), but you discover it’s useless without practical driving experience.
Within moments, you crash into a wall and bring down other race car drivers with you. You suffer injuries that affect you and others for a very long time.
Banks, lenders, and business development organizations wonder why new start-up businesses in Canada continue to crash into the wall at record rates. Even with the most perfect written business plan, many lenders no longer lend to new start-up businesses simply because the risk for failure is too high.
A friend of mine was recently laid off from a job she had for many years. Like most people she went on unemployment benefits while she struggled to look for work. Realising her hope for employment in Canada was bleak she decided to start her own business. She had no previous experience running a business.
She discovered a government-sponsored program that would allow her to receive unemployment benefits while starting her own business. The only catch to the deal was she would have to attend and complete the unemployment business training course on how to properly start her own business, or her unemployment benefits would be cut off.
While taking the class she came to me almost weekly seeking help with her business plan. I soon realised that her course was very focused on the written business plan, with very little practical training involved.
Every business scholar and successful entrepreneur would agree that a written business plan is crucial to the start-up process. Before a building can be built there has to be a solid blueprint. Essentials to a business plan are strategies such as the mission statement, target market, industry analysis, competition, marketing, financial projections and so on.
There is, however, a limit to what can be learned in a classroom setting, without hands-on experience or through the examples of successful entrepreneurs.
If government lenders, banks and others continue to focus exclusively on well-written business plans, they might as well attach a bankruptcy application form to each loan application.
There are many reasons why businesses fail, and in most cases failure has little to do with not following the actual business plan.
CANADA’S BUSINESS TAX SYSTEM
A new small business owner may not be properly prepared to handle Canada’s tax system.
After a year or so in business, the owner can expect government envelopes to begin arriving almost daily in the mail.
All levels of government will be looking for their money. There will be Municipal, Provincial and Federal taxes, plus GST. If your business qualifies you may also be subject to Retail Sales Tax and Workman’s Compensation dues.
Hiring an employee or two will launch the new business owner into Canada’s complicated and expensive payroll system. Many business associations continue to lobby against Canada’s excessive business payroll tax. They maintain the expensive payroll system alone is prohibiting new start-ups from providing job opportunities. They say this is the true reason why there are few jobs available in Canada. Entrepreneurs simply don’t want to do business here because of our tax system.
A business owner can expect that more than 50% of every dollar earned will be paid out in tax. This means the tax man is your partner and you may not even know it. That is of course if you’re a business that actually pays tax as many don’t. If you do you may find yourself competing with competitors undermining your prices whom have given up and illegally joined the underground economy.
Understanding Canada’s business tax system and how to manage and pay business tax on time can make the difference between success and failure.
And what about other aspects of business that may not be covered in the business plan? For example:
· Renting space; dealing with commercial landlords who seek long term leases with hidden personal guarantees that may prevent your business from growing when you can’t break out of a lease.
· financing equipment and vehicles successfully
· finding the right insurance for the business and its employees
· Coping with suppliers or customers who don’t pay.
· Dealing with bad debt, insurance claims, lawyers, accountants, customs and freight brokers.
· entering into contracts
· Learning how to hire and fire employees, and discovering their rights under the employment legislation
Some of these issues alone are documented business killers.
What is the Answer?
In the early days of the Internet there was a Dot Com Venture Capital boom. Millions of dollars were being invested by Venture Capitalists and private lenders into new start-ups. Some deals went well; others were disastrous.
During this time, I read about a few Venture Capital firms who made the decision to nurture the business in which they were investing on many different levels.
For example, the new start-ups were not only well-financed by lenders/investors, they were provided with office space sometimes in the same building as the lender or on the same floor. The owners and staff were given basic business training paid for by the lender/investors. They virtually had a professional venture capitalist holding their hand each step of the way.
Imagine one of Canada’s leading banks lending to new start-ups under a new training program. Before a potential loan applicant could even get an appointment to see a loan rep, they would have to complete a joint government and bank sponsored professional business course.
A course available day, nights, or weekends to accommodate any schedule, taught by qualified business professionals who were not only teachers but were successful entrepreneurs in their own right. Entrepreneurs who focus not only on the written business plan but who could teach on all the expected struggles of running a Canadian business. A course that could cover various aspects of industry, such as retail, construction, manufacturing, technology etc.
In Canada we have subsidized housing for those who cannot afford to pay expensive rent. Imagine government-subsidized commercial space for new businesses trying to grow.
Why should we expect the government to pay or assist with such training?
Every new business created is a new tax payer to our system. A company who will pay the government 50% or more on every dollar earned. Each employee who works at the new company will also pay an array of other taxes. An employee who is making money will also spend money into the economy.
The failure of a company, from a government standpoint, is the death of a tax payer. It is in the government’s best interest to keep businesses alive and offer incentives for business to be created and to grow, so that jobs can be created.
Giving out government grants to new start ups using well-designed business plans to the untrained and unqualified only increases the financial coffers of bankruptcy trustees.
Kevin Bousquet is the president of The Corpa Group Inc; a Private Investigation and Due Diligence firm working for the Venture Capital Industry.