3 Financial Considerations for New Startups in Canada

Leading a startup can be an incredibly daunting task. Aside from staying on top of your products, services, and staff, you also have to make sure that your startup has longevity. According to SmallBizTrends, startups in their fourth year have a failure rate of 44 percent. Failing to find a market for their product, not having the right team, and succumbing to competition are some of the common reasons for startup failure. Another key aspect that startups should prioritize in order to avoid failure is their finances. In this post, let’s discuss three crucial financial considerations that startups should keep a close eye on to find success in the long run.

Cash Flow

In essence, cash flow is the net balance of cash that’s going in and out of your business at any specific point in time. It’s important to be prudent and make sure that your startup always has a positive cash flow as this means that more money is flowing in your business than going out. Having a positive cash flow also signifies that your company has liquid assets that allow your startup to reinvest in itself, settle debts, pay expenses, repay shareholders, and even prepare for financial challenges it may encounter down the road. To keep track of your startup’s cash flow, be sure to check your startup’s financial status at the end of each quarter. Doing so can help you place where your startup’s cash flow currently stands and determine if you need to cut back on certain expenditures.

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Taxes

Of course, your startup needs to comply with the taxes imposed by the federal government. However, it can be challenging for any startup founder to stay on top of this certain financial aspect, especially since they may already have a lot on their plate. In addition, every province in the country is taxed differently. If your startup is based in British Columbia, use a tax calculator that specifically caters to your province to get an accurate reading of how much you will need to pay. If you are still deciding on where to base your startup you can compare the results to calculators from Alberta or Ontario. You’ll see that there’s some difference to the taxes that you have to pay compared to residents in other provinces. Moreover, there may also be some tax benefits and refunds that may be only eligible to residents in your province. To make sure that you comply with the federal and provincial tax laws, you can employ the services of a trusted accountant in your area.

Cash Reserves

Every startup founder and business leader needs to prepare for the worst. For this reason, you should outline in your business plan what you have to do in case your startup faces extreme challenges and crises. Aside from listing down emergency financial programs that your startup may be eligible for, you should also have a savings plan and liquid assets that come in the form of cash reserves. Your cash reserves should at least cover six months’ worth of business expenses. This enables your startup to weather severe economic disasters, as well as ensure its long-term stability.

To make sure that your new startup finds success down the road, be sure to keep in mind the financial considerations that we’ve discussed above.

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