Best-Laid Business Plans Help Avoid Corporate Bankruptcy
As the famous saying goes, even the best-laid plans often go awry. The same can be said about business plans.
As a Licensed Insolvency Trustee, our office is required to have difficult conversations with weary business owners who are ready to throw in the towel. By the time they see us, they are in a poor financial position and see little hope in bouncing back. Although they assumed they had a solid business plan, they have usually exceeded the scope of their budget.
With corporate bankruptcies in Canada on the rise due to the impacts of COVID-19, we know there is a growing number of business owners who are feeling this way. While we can’t know with certainty what will happen in the coming months, we can still help you prepare. If you are developing a business plan, we’d like to share a few key things you should keep in mind to help you budget.
Whether you are creating your first-ever business plan or expanding on an existing business, we encourage you to utilize the resources that are available to you. Many of us know people in our networks who are currently running their own businesses. Reach out to the business owners you know as they can serve as mentors. With their experience, they can work with you to determine the feasibility of your own business plan. This guidance can help you avoid issues such as having a ballooning payroll or expanding beyond your current means.
We also recommend that you take advantage of government-funded supports that can assist you through this process. The Ontario government offers Small Business Enterprise Centres where you can set up a free consultation with a qualified business consultant. They can review your business plan and connect you with learning opportunities to expand your financial knowledge.
These centres often host workshops and seminars about business plan basics and entrepreneurship as well as funding opportunities. They can also connect you with Start Company Plus, a mentorship program that includes an opportunity to apply for a grant. As part of this program, you can receive guidance on how to prepare a budget for your business.
One of the common issues we find when meeting with struggling business owners is the downfall of not planning for future deductions. Unfortunately, some business owners don’t understand the importance of setting aside the GST/HST they collect on sales. During tax season, they fall short financially and end up with outstanding amounts owed to the Canada Revenue Agency. Since they don’t have the funds to pay by the deadline, they are hit with penalties and interest that make their financial situation worse.
We often see a similar situation when it comes to source deductions. Business owners with employees need to be sure they are setting aside the amount of money that is withheld from employees’ paycheques for CPP contributions and EI and income tax deductions. One recommendation is to open a separate bank account where you can set aside these extra amounts ahead of time. You’ll be in a stronger financial position when it comes time to do your taxes.
Make a Plan
Developing a budget - and following it closely - is one of the best things you can do to help you prevent these types of situations. For new business owners, this may seem like a challenging task as they don’t have previous years to work from. Even so, we recommend that you plan a budget of how much money you anticipate you’ll bring in. Consider this in relation to how much you’ll need for business expenses each month. We suggest working with a tax professional who will help you estimate how much taxes you will owe.
With a well-planned budget, a savings plan, and a network of knowledge, you will be in a better financial position as you build your business.
As a Licensed Insolvency Trustee, our professionalism and knowledge is an asset for those facing corporate insolvency in Canada. Reach out to us today to discuss solutions for your business finances. We’re here to help.