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Look before you leap into business -- by Ross MacDonald

Starting your own business can be a challenging yet rewarding experience. Making the decision to proceed takes courage as it involves risk, and is not something to jump into without due consideration.

Starting your own business can be a challenging yet rewarding experience. Making the decision to proceed takes courage as it involves risk, and is not something to jump into without due consideration. Not only does it require you to forego the comforts of a steady stream of income provided by full-time employment, but in many instances, it also involves putting your personal equity on the line.

Something else aspiring entrepreneurs do not like to accept is the potential for failure, no matter what opportunity exists in the marketplace.

Were you thinking about starting a business and now I have changed your mind? I hope not. Our Business Enterprise Centre office has seen numerous success cases, many that turned out more successful than the entrepreneur believed.

In working with our clients on business preparation, we stress that proper financial planning is of the utmost importance. The old adage “he who fails to plan, plans to fail” still holds true today. The key is to achieve a balance between having enough start-up financing and cash flow in place and not over-extending financial commitments to the point where short-term business revenue shortfalls put operations at risk.

In the preliminary planning, you need to conduct an assessment to determine what your financial requirements are.

Consider where you want to be located, and the required renovations, equipment, office furniture and fixture purchases, and marketing to establish yourself. Consider your short-term cash flow requirements from the standpoint that it takes time to establish a business and you will likely earn little to no profit in the first few months.

Do not depend on forecasted sales during the shortterm for important pieces of your business.

Know what you need to get started? Next consider how this is going to be financed and funded. There are numerous sources for both start-up or business expansions available to Northern Ontario businesses, all coming with their advantages and disadvantages.

The first funding avenue entrepreneurs should go after are programs through the Northern Ontario Heritage Fund Corporation (NOHFC). The NOHFC has been around for years, but in May 2009 they introduced new and revised programs.

In addition to their Young Entrepreneur Program, there is the Northern Entrepreneur Program where people of all ages can access up to $125,000 in a conditional contribution (aka grant) for 50 per cent of eligible expenses. These expenses include equipment, leasehold improvements, building purchase, office and marketing.

With most NOHFC programs, the entrepreneur is expected to contribute 10 per cent of the grant towards the project.

If your expenses go beyond $250,000, new or expanding businesses may want to consider the NOHFC Enterprises North Job Creation Program, which provides up to $1 million in support.

Like the Entrepreneur program, the provincial government will provide 50 per cent support for eligible expenses; however, half this support will be a loan, generally fixed at or near prime. You can imagine the interest these programs are generating.

As such, people are looking at a four-to six-month process. Despite the length, the important thing is to get the initial application submitted because if you are approved six months from now, you can claim expenses back to the time they receive this application, allowing you to explore short-term financing.

The main factor in getting through the NOHFC process rests on the entrepreneur, her/his diligence and speed with moving along with the business plan, financial forecast and other required documentation.

There are other options for financing your venture, depending on your credit score.

Most people are not aware of the factors that determine this score, and just because you pay your bills on time and are not in the collection agency does not mean your credit is great. How long have you had credit established? How often do you apply for credit? How high is your credit utilization rate?

All these factors affect your score. If you are a youth aged 18-34, you can access up to $15,000 through the Canadian Youth Business Foundation. Although this loan is small, the great features are that it is unsecured, the interest rate is no higher than prime plus two per cent and it can be used towards any start-up or short-term expense.

For people with great credit and needing more, chartered banks need to be considered. There are some ventures banks just will not look at, but you can potentially access programs that provide up to 90 per cent financing of eligible expenses.

Finally, for people with credit issues and/or ideas, traditional banks will not finance, there are the Business Development Bank of Canada (BDC) and the Community Futures Development Corporations (CFDC).

The BDC and CFDCs will charge a higher interest rate, averaging between 8-12 per cent, but for some this will be their only option.

As a final piece of advice, if you are thinking about starting or expanding your business, your first stop should be your local Small Business Enterprise Centre (SBEC).

Each major Northern centre has an SBEC, as well as Parry Sound, Kenora and Haileybury. We do not provide funding or financing directly, but we can assist you will business planning, funding applications and other aspects of your business start-up.


Ross MacDonald is a business development specialist with the Business Enterprise Centre in Timmins