Welcome to Zenbooks Fireside Chat: Starting your own Business – Why Businesses Fail! We had the pleasure to speak with Kayla Isabelle, CEO, from Startup Canada, Jessica Wong, Director of Accounting, from Zenbooks and Valerie Bruneau, Insolvency Trustee, from Gingras & Associés Inc. They’ve got answers to your questions about starting your own business or running a profitable business.
Most Venture Capitalists will tell you that the founders themselves are more important than the business idea, and this is why it’s so important to be properly educated and a savvy business owner. One study, from the Tri-State Institute in Alabama, found that nine out of ten business failures are caused by a lack of general business management skills and planning. But you can avoid this; these are skills that can be learned and there is training available! Remember that all these things are within your control and they can make or break your business venture. The most important investment you can make prior to starting your business is in yourself.
Repeat failures or lessons learned?
We asked Valerie whether she has seen the same people going through bankruptcies multiple times or if people learn lessons from their first “failures”? The majority of people learn a lesson. Coming to see a trustee is not an easy decision, it’s very emotional and Valerie has noticed that people take away something from that experience. Valerie feels that a common issue is that most people lack general management skills. When she sees that clients are not remitting their taxes or HST payments, that’s a common sign that these are the ones who are usually repeating their mistakes.
Jessica agreed with that sentiment. She has seen people borrow against CRA debts and that’s never good news. It’s a last resort that creates many issues – and not just the interest rates! It demonstrates an attitude towards non-compliance that’s not good long term management for the business. Before taking on a new client, one question that Zenbooks often asks is “Do you have a good relationship with the CRA?” Eric, Principal, tells us the answer to this question speaks volumes.
What are some ways a business owner can improve or what can they learn after a bankruptcy?
Valerie tells us that a lot of the work needs to come from within. Whether it’s your personal finances or your business, becoming financially literate is a must and takes time to develop. Valerie tells us that the bankruptcy process does offer follow up appointments and budget counseling sessions but it’s still something that needs to be worked on on a weekly basis.
Kayla, who helps businesses through the startup process, was asked what factors make or break a business?
Competitive analysis is key, says Kayla, it’s very important to do your research. Kayla told us that she has seen two million new businesses emerge coming out of the pandemic. The big issues she’s seen have been a lot of duplication of ideas, businesses that are not fully understanding the landscape they’re jumping into, and sometimes a lack of research. You must identify what is unique about your offering.
Kayla also tells us how important it is to have a strong foundation to work with. The building blocks of a business are extremely important and often overlooked. Jessica agreed; working with clients who have more experience is different than working with a new business owner. Working with new business owners takes more time – you need to educate them. Experienced business owners already know what to look out for and how to track their finances.
Kayla believes it’s very important to build advisory networks you can tap into for different types of advice at different stages of growth. But also, keep in mind their advice is not always something that you have to implement. Having advisors and networks to tap into can be vital but every business owner needs to use their judgment.
Jessica has helped many business owners with their finances. We wanted to know if she can tell by looking at their financials if they’re going in the wrong direction? Jessica tells us the obvious, when your expenses are higher than your revenue then something needs to change. If you’re not able to make payroll or pay your vendors, these are good signs that something needs to change. And while cash flow can be temporary, profitability is long term. So make sure to have a profitable business model. “When people decide to go forward with bankruptcy it’s because they feel the business is not viable anymore.” Valerie tells us. She explains that bankruptcy is always a last resort after receiving feedback and going through all the possible options.
Have you seen a company bounce back from bankruptcy or have you advised an owner on a way out?
Valerie explains that business owners who are at the brink of bankruptcy have other options as well. She tells us that coming to see a trustee could also mean new light for your venture. “There is a way for your business to get out of the situation if there is profitability and viability for the future.” There government loans available,, like the CEBA loans during the pandemic, to help business owners. Yes, these loans need to be paid back but it is a way to keep the business afloat.
What are the biggest reasons businesses do not succeed?
Kayla tells us that scaling too quickly and making certain investments could be a risky move. A growth at all costs mindset could really set a business back or even lead to failure. Jessica tells us that the two main expenses for a business are COGS and payroll. Hiring new staff too quickly could be a big burden on a business, so think long and hard about what value a new employee would bring. When it comes to COGS, Jessica reminds us that it is important to figure out how much things are costing you so you can charge the appropriate price.
Is it possible to acquire a bankrupt business with the sole purpose of reviving it and making it profitable?
Valerie tells us that it is very possible to do this. Build the business back up and you won’t be carrying all the debts because they are erased during bankruptcy. Of course, there are rules that need to be followed in order to achieve this but it is very doable.
Being a jack of all trades, is it good or bad?
Valerie thinks it’s a good thing but you also need to realize your own limitations. Kayla recommends having a comfortable awareness of every aspect of your business. “You don’t want a whole segment of your business to be something you don’t understand. Start speaking the language and get more comfortable in that space.” But she also reminds us that some opinion leaders would say “contract whatever it is you don’t want to do and focus on your superpower.” Therefore, nothing is set in stone, there is no right or wrong formula.
How important is building your network for new business owners?
Kayla explains that an important thing to take into consideration when networking is being thoughtful around the types of networks that will be beneficial for your business. It’s important to segment who you will speak to and remember it’s about quality rather than quantity. “Be intentional about who you’re trying to find would be my recommendation” says Kayla.
We asked the audience: have you had business ideas that didn’t work? 88% of people said yes. Just because one idea fails doesn’t mean another will not. “That’s entrepreneurship,” Kayla says.
Should you patent your idea before setting up a business?
Kayla answered quickly and said “IP is hard in Canada, it’s very time consuming and a long long long process. Protecting your idea is important but the process is not a simple one.”
What are the key steps to setting up a business in Canada and securing funding?
StartUp Canada has a tool called The Business Owners Toolbox. These are foundational building blocks of what to first explore when starting your business. There’s a lot of practical foundational information for new business owners and it’s free. Jessica recommends starting out as a sole proprietor, that way you can claim the expenses in your personal income taxes until you start to grow your business.
How do you navigate identifying the right business model for you?
Kayla tells us that it is important to explore what’s out there. She also mentioned that there are more and more for profit social enterprises being built. It’s reimagining what it’s like to rebuild businesses who are doing good while also being profitable.
How important is it using the right technology for a business owner?
Jessica tells us that having the right tech stack helps business owners get more relevant information quicker and makes the whole business process much easier. Using a software that’s too simple can be very limiting for many business owners and could become very time consuming having to add everything manually.
When starting a new business, is there an indicator of taking too long?
“How long you can sustain not selling will be a good indicator,” Kayla tells us. Jessica tells us that it all depends on the industry. “There are a lot of tech companies that don’t make money for years but they have a lot of investors. For the typical small business, the sooner, the better. That is a way to also test the market to see if they want to use your product/service.”
As a final note, Kayla told us “there is no perfect, absolute foolproof way to build a business. It’s an art, a science, it’s experimental and it’s messy. Give yourself the protection you need to make sure you’re doing it properly. And be gentle on yourself, you can’t be an expert in every part of building a business.” While Jessica reminds us to “make sure to meet with your accountant and bookkeeper regularly.”
For everyone looking to start a business, the important thing to remember is that you have resources out there! Get informed and stay active. Reach out to your network for advice but make sure you know all aspects of the business. You don’t have to be an expert but make sure you take advantage of the many resources available. Stay up to date on your finances and keep your accountant in the loop. And most of all, good luck!
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Zenbooks has been Canada’s go-to cloud accounting firm since 2015. The Fireside Chat Webinar series discusses useful insights for small business owners and explores small business issues. Zenbooks combines modern cloud technology with our in-house expert analysis to provide you with the online accounting service and guidance that best suits your business needs. From tax planning to payroll and monthly accounting services. They’re your finance team! (follow our blog here.)
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