Kula Blog

Starting a business: My talk from Podcamp Halifax 2012

By Jeff White: Jan 27, 2012

Filed Under: Business, Education, Jeff

I’ve had the pleasure of giving a talk at each of the Podcamp Halifax events since it was begun four years ago by Craig Moore, Ryan Deschamps and Jon McGinley. I thoroughly enjoy the event. It’s well organized, and the excitement and interest is infectious.

Since I get to give a ton of talks for my business that usually have something to do with the web, design, social media or the like, I like to give presentations on subjects I don’t normally get to talk about. Last year I discussed saving the oval mixed with typographic trivia and this year I spoke on how to start and run a business. There isn’t really time or space enough to recap the entire talk here, but I thought I’d share some of the major points. 

Before you start

If you’re going to start your own business, make sure you work for someone else first. This way you can learn about how things work in your industry, and make some mistakes on someone else’s dime. Freelance on the side (every agency I’ve ever worked at doesn’t want you do this, but everyone does it). If it looks like you can make a go of it, jump. I once ran a website that got 80-100,000 unique visitors a month, but none of us involved in the site had the balls to leave our ‘real’ jobs.

It may sound obvious, but talk to someone you trust and get a recommendation for the following people that you likely do not already know: lawyer, accountant, banker, and see if you can find someone who’s willing to mentor you as well.

Write a business plan. There are plenty of resources for this online, but there are also programs at CEED and SMU that can help you with this task. Do your research. Figure out who your competitors are.

Incorporate your company immediately, rather than simply registering a sole proprietorship/partnership with the Registry of Joint Stocks. First of all, you’ll save massively on your taxes, since corporations pay less income tax than individuals. You can also withdraw over $30,000 from your company as a dividend without paying a dime of personal income tax. If you configure the company correctly, you can also income split with your spouse, assuming that they play a role in the company. Also, if you take dividends exclusively from your company, realize that you will not need to contribute to CPP (because honestly, it’s not going to be there for you when you need it anyway) but you also won’t increase your RRSP contribution limit, so you may need to draw some salary just to keep that option available to you.

The other thing with incorporating a company is that you’ll be able to call it whatever you want, whereas the Registry of Joint Stocks requires your company name to also describe what you do. There’s a reason that the Registry is in the same office as the DMV. What these people understand about running a business would fit in the fine print on the back of your driver’s license. Don’t risk it. Incorporate, and brand things properly.

Once you have incorporated the company, call the Canada Revenue Agency and get an HST number. If your revenue exceeds $35,000, you will need to collect HST, and if you don’t have a number and you do go over that number in one 12 month period, you will have to pay the HST on what you’ve earned even if you didn’t collect it.

Assuming that you’re setting up a service type business, you’ll need to figure out your hourly billing rate. The best way that I’ve found to do this is to first prepare a personal monthly budget, taking into account all expenses that you’ll have. Multiply that number by 12. That’s the salary you’ll need in order to survive. Then, divide that number by 52, that’s how much you’ll need to bill in a week (not including taxes, of course). Keep in mind that you won’t be billable every hour, so you should likely increase the number significantly. Keep in mind that it’s hard to up your rate once you’ve established it, so try to be at least a little aggressive with the number. It’s worth it.

Define who you are

What’s your business going to stand for? It’s harder to define what you are going to be, not what you aren’t but it’s worthwhile.

Remember, you can’t be all things to all people, so don’t try. Focus your business either on a core skill set to a broad client base, or perhaps a larger offering to a small industry vertical. Either way, it allows you to become an expert in a niche and be more valuable to your clients, not less.

Selling

If you can’t sell, you can’t run a business. It’s essential to always be working on your business, not just in your business. A client and friend, Talbot Sweetapple once said to me that there are three elements to a project: money, people and the project itself. You need two of these to be good in order for a project to succeed. For example, if someone’s a jerk, but they have lots of money and the project itself is awesome, go for it. If they have no money, but they’re cool and the project is interesting, it might be worth taking on.

Only you can decide what your criteria is, but it’s important to not just take everything that’s thrown at you. Also, saying no just makes a client want you more. People often want what they can’t have.

Take a meeting with anyone. Even if it doesn’t look like the project they have is all that interesting, it’s essential to continue expanding your network.

Tell your entire family what you do. Perfect your short pitch on them, and ask them to refer you to anyone that might need what you do.

Create a weighted sales funnel and update it monthly. Input every project into a spreadsheet or CRM and include the total value of the project. Then, estimate the percentage chance that you have of closing that business. Be conservative and honest. A $50,000 project that you have a 5% chance of closing is only worth $2,500. Maintain the funnel, and you’ll be able to tell relatively accurately how business will progress if you keep selling.

Marketing and PR

Be a mentor to someone else. It’s good karma and you’re expanding your network of contacts.

Be careful with business referral groups. They tend to only benefit realtors, insurance sales people and lawyers. They don’t offer much value to other types of businesses, but they are a great way to meet lawyers, accountants and bankers.

Social media is exceptionally useful at introducing you to people in your area, but it’s essential to actually meet those people in person. Small businesses live and die on the relationships you foster and nurture.

Use your ever-expanding network to try to meet some people in the media. If you can get on TV or radio or quoted in the paper talking about things you’re an expert in is fantastic for your professional reputation.

The art of running a company

As soon as you finish reading this post, go and watch Fuck You, Pay Me by Mike Monteiro of Mule Design. Absolutely required viewing for anyone in a service business.

This is obvious, but pay your taxes. Set aside money from the beginning and pay them on time. It’s really easy to make this mistake, and hard to get out from under it. Also, if you need help or more time, call CRA and ask for it. They are actually generally pretty helpful if you’re actually open and communicative with them.

Communicate payment arrangements with your suppliers and pay them as soon as you are paid.

Ensure you have procedures for signoffs and approvals at every stage in a project. Do not proceed without written approval. It only needs to be an email, but you must have a record to avoid getting burned.

Buy life, health and disability insurance. You may never need it, but you’ll be screwed if you do and you don’t have it.

Growth

Hiring people is hard. You really need to be certain that you can afford an employee. My test has been that when I’m working 80-100 hours a week to make up for the lack of assistance, I need to bring someone on to help.

Make certain you talk to their references and do your research. Often the fit of a person is more important than their skills. When in doubt, hire the person with the great personality that gets your organization.

Teach at a local university, community college or night class. You’ll learn an awful lot about yourself, and it will force you to focus on how you do what you do in a way that makes it easy to explain to others. This is also a great way to get early access to top talent before anyone else knows about them.

Find an office or a co-working space. You’ll appear more professional, and it helps to separate your work and home life.

Subcontracting with a larger competitor is a reasonable sales strategy but these relationships never last, and you’re always subservient to someone else.

Working for free

Don’t.

Instead, reduce scope, remove components or functionality.

If you do decide to do work for a not for profit or charity, charge appropriately and remember that tax receipts for work in kind will have no impact on your tax return. None. So if you want to do this kind of work, do it because it’s fulfilling not for any monetary benefit.

Lessons I’ve learned

Minimize your spending. For example, we use a rubber stamp with our address on it rather than printing custom envelopes. It’s cheap and easy.

Don’t be afraid to fire a client if the relationship isn’t working for you, and your work isn’t valued.

Try not to let any client become more than 10% of your total revenue. that way if something goes sideways, you won’t risk losing a huge chunk of revenue. In year two of my first company, Brightwhite, I lost one client who accounted for more than 50% of my revenue. It took me months to recover, but once I did, the business was much more diversified and sustainable. Without family support, it may not have been possible to continue. This isn’t a fun situation and there are always factors outside of your control, so mitigate this by not putting too many eggs in a single basket.

Organize and do things for others. Start a conference like Podcamp. Save an oval. Whatever. Just do it because you enjoy it. Do not do it with the hope of a return. It will pay dividends in ways that you simply can’t calculate at the time.

Reply to emails quickly. Promptness is inspiring.

When you make a mistake, apologize and fix the situation, even if it costs you time or money. Your reputation is worth saving.

Be positive. If a client asks for a change in a meeting, and it’s out of scope, first congratulate them on having fantastic taste, and then find a way to tell them that this wasn’t included. Don’t agree to it on the spot, but don’t disagree either. Offer to get back to them after reviewing the initial documents if you don’t want to make a commitment on the spot without thinking out the implications.

Principles

Quality should always be your primary goal. When you worship at the altar of quality, it becomes the primary driver of everything, and it’s how people think of you and your business.

Make it easy for people to work with you. Use online tools to communicate with your clients. Take credit cards if you can get a merchant or Paypal account. Although you’ll lose 3% of the invoice total, it could mean the difference between getting paid in a week instead of 120 days.

Arrive on time, and if you’re late, you better have a good story and it better be true. I was once a week early for a meeting in Saint John, but it made for a good story when I finally did meet with the client!

Be the kind of person you would want to do business with.

Paul Arden, a British ad man once said: “Give away everything you know and more will come back to you.” I truly believe this and issue it as a challenge for everyone to follow. You have knowledge worth sharing, so give it away.

8 Comments

  • Ian Conrad
    January 27, 2012
    10:59 am

    This is an excellent post, probably the best summary I’ve every read on the topic. It seriously should come with a “New Business Started Kit”, or even better, “So You’re Thinking About Starting a Business”. That, and how to calculate the $/vol/alc.

    • Jeff White
      January 27, 2012
      11:05 am

      Well, obviously, that’s an essential skill when you’re just starting out and you’ve got no cash-flow, right?

      Thanks Ian.

  • [...] White of Kula Partners posted a lengthy summary of his talk on “Starting a business,” a talk he just gave at Podcamp Halifax 2012. A lot of the specifics are geared toward [...]

  • Paul
    January 27, 2012
    6:44 pm

    Awesome read, thanks! Something to think about.

  • Brad Touesnard
    February 12, 2012
    8:06 pm

    This is a great article Jeff, nicely done. I’ll be pointing people here asking about starting a business. Wish I had read this a few years ago actually.

    I’m wondering about your advice to immediately incorporate. I’ve asked around and most say this is a mistake. That you only get the benefits of paying yourself dividends when you hit $X/year in revenue. X varies depending on who you talk to, but my accountant says $150K/year. What do you think? Hogwash?

    Also, I’m fairly certain you don’t need to pay HST on a full year of revenue when you exceed the small supplier limit ($30K): http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/rgstrng/smllspplrclc-eng.html. I’ve heard others say this though too, so I could be misinterpreting that article or the CRA could have changed their rules.

  • Jeff White
    February 12, 2012
    8:16 pm

    Thanks for the comment, Brad!

    I don’t see how incorporating could ever be a mistake, unless you need to max your RRSP savings and require the deductions each year. There are next to no situations where you can’t save on personal taxes by incorporating. You’ll also be regarded as more professional when you go after bigger business. I don’t see a downside, only upsides. Plus, it keeps things legally distinct.

    It would appear that you are correct about the HST, except as detailed in example three where the $30k revenue mark was broken in a single quarter. You would still need to begin collecting HST as soon as you break the $30 limit in four quarters, so it requires a shift in billing, and you’d need to be on top of it. If I was a client who was used to not paying HST, it might bug me if that changed all of a sudden!

    It just makes much more sense to incorporate and charge tax from the get-go. It’s important to decide if this is a business or a hobby. Many organizations look on sole proprietors who don’t charge tax as hobbyists, and when you’re in business you need every leg up you can get.

  • Jolene
    February 28, 2012
    4:03 pm

    Wow I have been reading soo many articles the last 2 weeks trying to make the decision if starting a corporation is truly the right choice for the reasons I am doing it. This has to be the BEST article out there, its up-to-date, easy to read and answered my final and most stressful question! (Paying personal tax if I do not pay more than $30,000 in dividends to myself)
    You’ve done an amazing Job and I wish this site was easier to find while searching, guess I was searching the wrong thing.

    Thank you for the article!

    • Jeff White
      February 28, 2012
      4:07 pm

      Thanks for your comments, Jolene, much appreciated and I’m glad it was of assistance for you.

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