18Feb
How to Read an Income Statement

financials

For many new in the business world, reading an income statement can be a confusing and intimidating experience. However if you know where to look you will realize that it is not as intimidating as it may appear. Understanding an income statement is a very important skill to have for entrepreneurs as it aids with making sound business decisions. Basically, an income statement tells you how much money came into your company during a specific period, how much a business spent in order to generate income, and how much profit a business has after having paid all expenses. Here are a few points that will make income statements easier to understand.

Income statements cover a period of time

Before you delve into reading the income statement, make sure to take note of the specific time period covered. Questions you should be able to answer for the said period include: What are the revenues of the company during the period? Have the revenues increased or decreased over the last few periods? What are the various components of cost? How profitable was the company during this period? What are the earnings attributable to a share or the Earnings per Share?

Income statements follow a simple formula

Income statements may have slight variations, depending on the company. However, they all possess the same data. Essentially, total revenue, total expenses, and net income (Total revenue-total expenses= Net income). Additional information is simply added in order to give the reader a more detailed depiction of financial status.

Don’t let the jargon throw you off

What can make income statements difficult to understand is wording. Keep in mind that businesses can use different words to describe the same concept. For instance, the term “sale” or “income” can be used instead of “revenue”. The word “expenses” can be used instead “costs.” “Profits” and “net income” are also interchangeable.

Expenses are often split into different parts

Expenses tend to be broken down into components. Cost of Goods Sold is the direct cost attributable to goods sold. Selling, General and Administrative Expenses combines payroll costs, except for what has been included in labour costs. Depreciation and amortization are charges with regards to fixed and intangible assets that have been capitalized on the balance sheet over time. Sales & marketing, as well as Research & Development costs are also almost always included in income statements.

Keep an eye for cash flow

Comparing an income statement to a cash flow statement is highly recommended. The reason for this is to see if the profits earned are supported by the cash coming into the company. High profits on an income statement paired with low cash flow can imply weak quality of earnings. Know your key drivers and manage them. Keep a careful eye on areas that affect cash flow: accounts receivable collections and inventory turnover. How are you doing compared to past performance and your peers? Watch key areas that affect profits, net and gross margins, labor and fixed asset utilization. Though this is more acceptable with start-ups since they likely have to make substantial inventory investment before collecting from customers, this is something that should improve over time.

Take note of the profit margin and earnings per share

The profit margin will give you an indication of the percentage of revenue that is left for shareholders after expenses are paid. Earnings per share will tell you the portion of earnings you would be entitled to if you owned one share.

Income statements can be very intimidating if you are a first-time business owner. If you are an entrepreneur needing help with your financial statements, remember that some aspects of running a business are not worth saving money on. There’s no need to turn yourself into a CPA, but you must be able to read financial statements, talk with better qualified financial people and assess your company’s performance.This will lower your stress level and get the job done efficiently.

8Feb
PME Mentor: Nancy Cleman

Mentorship is at the heart of PME’s success. On this 18^th anniversary, it would only be appropriate to give thanks to our mentors. Our mentors spend countless hours helping our entrepreneurs reach their full potential. We recently got the chance to catch up with our longtime mentor, Me Nancy Cleman. Nancy is a member of the Quebec Bar and the law society of Upper Canada. Over her years of experience, she has provided legal advice to a variety of corporate and commercial clients, including a range of industries such as software, fashion, film and services for the elderly. Nancy is also an accomplished speaker and author. Here are her thoughts on mentorship, and why it matters.

Q: What aspects of mentorship do you enjoy most?

A: What I enjoy most about mentorship is being introduced to entrepreneurs and learning about their visions. Speaking to them and offering guidance businesses they are seeking to build is an essential part of being a mentor. I enjoy offering perspective and working collaboratively with entrepreneurs.

Q: How can an entrepreneur make the best out of their relationship with their mentor?

A: The entrepreneur can make the best of the relationship by respecting the relationship that is being built with a mentor. As mentors, we get many calls, however often times there is no follow up. The relationship of mentor and mentee is one of respect and trust. Mutual trust and respect is the only way of getting the work done in an efficient manner.

Q: What advice would you give an entrepreneur thinking of working with a mentor?

A: It is important to listen and to be clear with the facts. Thank the mentor for his or her time. If you have an appointment then keep it or tell the mentor, you cannot make it. Mentorship is a rewarding relationship for both parties. As a mentor, I benefit from the opportunity to learn new things and share my experiences.

Our mentors are passionate people dedicated to helping others. With their help, entrepreneurs have been able to reach great heights. Thanks to the efforts and unwavering dedication of professionals like Nancy, we look forward to what the next 18 years have in store for PME.

10Jan
What Is an Economic Moat?

The term economic moat, coined and popularized by Warren Buffett, refers to a business ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. Imagine McDonald’s without cost, convenience and golden arches, Nike without technological and trademarked innovation, or Amazon without its timely customer service innovations. They would be relatively unpopular companies struggling to survive in their respective industries. Business mogul, Warren Buffet has introduced the world to many of his lifelong lessons over the decades. One of the lessons that seems to have stayed relevant throughout the years is related to the coined term, “economic moat”.

As the age-old saying goes: Being the best is great because you’re number one, but being unique is greater because you’re the only one. Buffet has explained the importance of economic moats specifically when describing his investment strategy. His strategy centers on companies with strong economic moats, as they are more likely to withstand their competitors, and remain successful and unique. A company having a competitive advantage that further differentiates it from the competition will help through the highs and lows of operating a business. In its most basic form, a company without an economic moat is like a movie without an engaging hero, or storyline. In such a situation, there would be no way of creating a loyal consumer following, and subsequently no way of overcoming challenges that arise over time. On the other end of the spectrum, companies with competitive advantages can be threatened by competitors who replicate their methods. Establishing economic moats can therefore help companies protect long-term profits.

Thankfully for today’s business leaders, Buffet didn’t simply coin a theory-based term that required a bunch of scholarly analysis. The concept of building economic moats is a tangible one that can be leveraged through different business strategies. For instance, economic moats can be achieved in five ways: cost advantages, the network effect, high customer switching cost, efficient scale and intangible assets. The way you choose to build your economic moats all depends on the nature of your business. Think about what would be a good fit for the strategy you plan to execute. Buffet emphasizes the economic moat as an institution. It is not the mere elements that customers will like. Companies that build moats carve them around their businesses to keep competitors at bay. For instance, people loved Coca-Cola 50 years ago, and it’s fair to assume that they will 50 years from now. This is because Coca-Cola utilized the five sources of economic moats in order to create a loyal consumer base.

Let’s use the example of low-cost advantage. Suppose you have decided to make your fortune by running a lemonade stand. If you buy lemons in bulk once a week instead of every morning, you can reduce your expenses by 30%. This allows you to undercut prices of competing lemonade stands. While profits would increase, it wouldn’t take long for competitors to notice your method and replicate it. However, suppose you develop and patent a juicing technology. This technology would allow you to get 30% more juice out of the average lemon. This time, it would be a lot more difficult for the competition to duplicate. In this example, your economic moat is the patent that you hold on your proprietary technology.
The nature of capitalism is that others will want to come in and take what you have built. The goal for every business should be to build a durable fort around its castle. The goal is to protect it from any attack that would come from the competition. Sometimes an economic moat is having more talent, other times it’s establishing legally protected patents. Just remember to remain patient. You should stay persistent because it may even take a few tries until you get your strategy right.

13Dec
6 Tips for Reading an Income Statement

The income statement is one of three financial statements that you need to become familiar with (the other two are balance sheet and cash flow statement). Understanding an income statement is essential in order to analyze the profitability and future growth of your business however reading an income statement can be intimidating to many people. Especially, if you’re at the early stage of starting your first business. To make the process slightly easier for you, here are 6 tips you should consider while looking over any income statement. It may not be as difficult or as confusing as you think it is.

1. Every income statement follows a simple formula
There is one formula that every single income statements follows:
Revenue- Expenses= Profit.

2. Income statements cover a period of time
The income statement will inform you of the amount your business has made over some time. usually, The statement will represent how much was made over a month, a quarter or a year. The “year-to-date” reflects business activity since January 1 to the present date (usually end of month).

3. Multiple names for one item cause complexity
Don’t let the financial jargon throw you off. Confusion can stem from the vocabulary used in in statements. People can use different terms to describe the same things. For instance, the words “sales” and “income” can be used interchangeably, as opposed to revenue. The term “profit” can be used instead of “net income”. “Expenses” are sometimes called “net income”.

4. The breakdown
Often times, expenses are split into multiple parts. Furthermore, profit is calculated at interim levels. For example, expenses will often be broken down into revenues, cost of goods sold, gross margin, selling, general and administrative (SG&A), and profit. Cost of goods sold are costs directly related to the products sold. Materials bought to make a product fits within this category. SG&A are costs not directly related to the making of the sold good. For example, salaries and office supplies are calculated for this.

5. Gross margin percent should be relatively constant
Gross margin is revenues less cost of goods sold. Also referred to as gross profit, gross margin is the money you receive from the products and services you sell, minus what it cost you to deliver them. It is essential because that the cost of goods sold move with revenue. The gross margin percentage is your gross margin divided by revenue. It should remain relatively constant over time. Any dramatic change with this regard should be seen as a red flag.

6. Dollars spent on SG&A should be relatively constant
Any significant and abrupt change in SG&A should be considered as alarming. It should remain constant overtime, and all dramatic and unjustifiable change should be looked into.

Understanding how to read an income statement is important, as it summarizes the overall financial health of your business. Not only is it simple once broken down, there are also many tools available online for you to deepen your knowledge on the matter.

3Dec
What to Do Before Accepting VC Funding

All start-up investors are not the same. Struggling entrepreneurs are often so happy to get a funding offer that they neglect the recommended reverse due diligence on the investors. Taking on equity investors to fund your company is much like getting married, it is a long term relationship that has to work at all levels. Investors will conduct due diligence and have a number of questions about your startup . But it is equally important that you understand the venture firm and the individual venture capitalist or angel investor who is considering an investment in your company. Though likely tempted to accept more capital, there are certain things all entrepreneurs must consider before accepting VC funding. More money is great, but weighing what this can imply for the future of your startup is crucial. In order to avoid accepting an investment you will regret down the line, here are a few things you should do before accepting VC funding.

Think about whether your investor can offer more than just a check

It is crucial that you research VCs thoroughly before you submit your pitch deck. Every venture capitalist has an investment thesis, strategy and approach to making decisions. If your business is technological, seek venture capitalists who help entrepreneurs in the tech field. Likewise, seek VCs who fund businesses in your stage of development whether it is a startup or an expansion. Having more capital is great, but think about other attributes that can benefit you long-term. Your research will help you determine if your business and team are aligned with the venture capitalist’s process.

You should ask about your investor’s investment track record. This is a follow-on about domain expertise and the experience of the specific VC. What are they most proud of? What was their contribution to the success of startups? This is also a way to identify other CEOs that have worked with this VC and get their perspective about the contribution the VC. Also, all investors do their due-diligence about a startup before investing. Entrepreneurs should be doing the same regarding investor. Reverse due-diligence is a process whereby entrepreneurs seek to validate the track record, operating style and motivation of their potential partner.
Analyze the terms of the investment

If a VC plans to embark on the journey with you, make sure you understand what his intentions are. Read the contract terms carefully. Have an experienced third party review the conditions of your partnership. For instance, it is important to know how involved they plan to be in the decision-making, and the stake they want to take. If a VC plans on taking a board seat, you want to make sure they will add value. Making sure you have the best people at the table is important.

More money is definitely tempting, especially for startups lacking capital. But it should be understood that receiving money from a VC has long-term consequences. For this reason

don’t succumb to the temptation to take funds from investors that you are not totally comfortable with. It is important to make sure that the partnership is a good fit, and compatible with your goals and ambitions.That means you and your business must benefit from both the money and mentoring from the investor, and the investor will win from getting a larger return sooner. Win-win relationships get better over time, whereas win-lose go downhill fast. Never underestimate the importance of doing your due-diligence, and reading the fine print.

6Nov
PME Mentor: David Horowitz

As the saying goes, the best way a mentor can prepare another leader is to expose him or her to other great people. Mentorship is an essential part of the PME Program. On this 18th anniversary, it would only be appropriate to give thanks to our mentors. We may not have all the answers, but what we can do is introduce you to someone who does. We recently got the chance to catch up with our longtime mentor, David Horowitz. David is a seasoned executive always interested in promoting entrepreneurship and international business. With over 30 years at Senior Management level, involved in the manufacturing, marketing and distribution, David wishes to pass on his knowledge gained from 10 years of teaching experience to aspiring entrepreneurs.

Q: What aspects of mentorship do you enjoy most?
A: Gaining the intrinsic rewards of helping others. When you decide to mentor someone, you really do not know how far they will go, but mentoring does make a difference. Whether you help shape the next great entrepreneur or help someone achieve their dreams, making a difference is all that matters. It feels great to know that you are a positive influence in someone else’s life.

Q: How can an entrepreneur make the best out of their relationship with their mentor?
A: Be prepared. Yes, the mentor’s time is valuable, but take advantage by being well prepared. Have an agenda. You want to use the time with mentor on your most pressing business issues. Be humble. Ask for criticism and feedback. Sometimes questions the mentee has are needed to be answered sooner than the planned meeting. Keep a swinging door policy so that ‘smaller but important decisions’ that need answering quickly are just an email away. These fast answers can save the entrepreneur time, but more importantly, can save the young firm money.

Q: What advice would you give an entrepreneur thinking of working with a mentor?
A: The relationship has to be authentic and there should be a baseline chemistry between the mentor and mentee, so pick your mentor accordingly. Be prepared to act on the advice given, rather than think the mentor is there to validate your shenanigans. Always remember the benefits a mentor can bring to the table, and never forget the statistics of small business failure- 80% of business start-ups do not make it past their 5th year. So don’t be shy to ask questions, listen and absorb as much as you can, and you can hopefully avoid getting as many scars as us mentors have had to endure.

Our mentors are passionate people dedicated to helping others. With their help, entrepreneurs have been able to reach great heights. Thanks to the efforts of people like David, we look forward to what the next 18 years has in store for PME.

27Sep
PME Co-Founder, Jimmy Alexander

We got the opportunity to have a quick chat with PME co-founder, Jimmy Alexander. Since 1999 he has been an essential part of PME’s success. He had some insight to share about the program, entrepreneurship, the lessons he’s learned along the way, and what he anticipates for the future.

Q: PME has been around for quite some time now. Why did you believe it was necessary to start PME?

A: Back in the days of the potential referendum, or the potential loss of the referendum, PME was founded in order to help young Jewish people stay in Montreal. We went out and we asked a set of Jewish people what it would take for them to stay in the city. They all said job prospects and career opportunities. We figured, what better way to do that than to take on the Jewish adage “give a man a fish and he eats for a day, teach a man to fish and he eats for a lifetime.” We wanted to give young people an opportunity to learn business. We wanted entrepreneurs and community leaders to have exponential growth within the community, and provide them with great potential.

Q: What has kept you motivated to continue after 18 years?

A: Our success! It’s so gratifying. I’ve participated in many community projects and, by far, the PME has been the most rewarding. Creating something from nothing, and enjoying the success we have, is for sure the motivation behind PME. It’s not just about the company’s we’ve funded. Just the mere fact that PME exists sparks people’s interest in starting businesses.

Q: What have been some of the highlights as part of the PME Committee? Do any moments stand out to you?

A: How we define success would be that more people who have been recipients of funding will eventually join our board, donate to PME and community and help us perpetuate the fund. Over the years, that is exactly what has happened. Right now, we thankfully have about four previous PME recipients sit on the board. That is by far, the most outstanding highlight to me! In a way it’s like meeting your grandchildren or great grandchildren!

Q: What is it about a particular business that makes it deserving of PME funding?

A: I think it’s two things. One, is the credibility of the plan. At its base, the idea, and where it fits in the shelf is crucial. In other words, how it is positioned within the industry it wants to be in is very important. The second aspect is the entrepreneur. The tenacity of the individual, their charm, charisma, and how they can explain the profitability of their business is equally as important. If they can’t convince a group like ours, who is really pushing for them to be successful, how are they going to convince others?

Q: Where do you see PME 18 years from now?

A: First of all, from a self-serving point of view I’d like to see my children or Stephen’s participate in the PME program. That would be great. We also actually started the plan for PME 2.0. I’d really like to see that grow into the next stage of PME. It’s a whole different ballgame, but we have a good plan set in place, and so continuing to build it and figuring out different ways of helping entrepreneurs is the goal.

Q: What do you believe is the biggest lesson you’ve learned over the years?

A: One of the biggest lessons we’ve learned, and taught many of our recipients, is that you show up day one with your plan and idea. However, you may have to adapt and change and deviate from what you originally set out to do. Making changes, while progressing is what keeps us successful. We’ve learned a lot, and more importantly, we’ve been very fortunate to have a very engaged board that has helped us along the way.

It is because of the dedication of community leaders like Jimmy Alexander that PME has seen great success. Starting and leading such a program comes with its set of challenges. However, with passionate people leading PME, the obstacles and challenges make for great lessons and brighter futures.

13Sep
How to Build a Perfect Pitch-Deck

When you see about 20 pitch decks a week over 15 years, you see A LOT of repeat mistakes. Many argue that there are different ways to create a pitch deck. This, however, is only half true. There is actually only one right way of building a pitch deck. Think about building a house. Every house needs a foundation, frame, walls, windows, paint, etc. A house can have its unique design and characteristics, but without the proper structure it can collapse. This too applies to your pitch deck. It’s all about the Story. Entrepreneurs often are confused by the term “Story”. A story is not adding meaningless details, jokes or anecdotes. Stories captivate, inspire and influence the audience you are pitching to. If done right it will get you closer to getting the deal you are hoping for. For maximum impact, here are the slides you must have in your pitch deck.

The Introductory Slide:

Captivate your audience by introducing your company, explaining what you do and why you do it!

The Need:

The need is caused by the problem you are aiming to solve with your product. Essentially, the problem is the villain of your story. As seen in any superhero movie, the villain is a very complex and multifaceted character. The same goes for the problem you have identified. Here is where you, the entrepreneur, explain the gap/problem/challenge that must be solved. This is best told in a story. You can choose to tell your own story, that of a friend, family member, or the user persona. You can even frame your presentation in a way that permits for a story telling technique. Include a clear and concise problem statement.

The External Environment and Market Potential:

This slide is crucial for your deck. Basically, it explains, why you and why now. Going into detail about the external environment and market potential also includes some number crunching. The TAM (Total Addressable Markets), SAM (Segmented Addressable Markets) and SOM (Share of Market) will give an indication of the market size. Don’t forget to address the values of the markets, what was spent on similar solutions in previous years, etc. Additionally, go over market trends among users that show a shift in behaviour. What is essential to highlight is that you’re working within a growing and profitable market!

Competitive analysis:

The goal here is to showcase your understanding of the market and its competitors. In order to do this in the best light you must highlight how you differentiate yourself from the competition. Visually, you can do so by preparing a quadrant or petal-diagram showing how you measure up to your competitors, listing them by name. More specifically, explain why you are better, what you understand that they don’t, what makes your product better, and what is your unfair advantage against them. Your differentiation statement will be the highlight.

The Solution:

Your solution is the “hero” of your story. For every quality your villain possesses, your hero embodies a counterpart. Not only does a hero come save the day, but it has also earned the trust and respect of a loyal group of people that rely on the hero. Describe how you are solving the issue with a simple solution sentence. A solution sentence should be formulated as such: we’re doing X (solving a problem), for Y (for a specific audience) by Z (what are you? A Platform/app/solution/tool, etc.). Don’t forget to mention your secret ingredient that is allowing you to do this. When showcasing your demo make sure to clearly portray the user experience, all relevant features, and what makes it beneficial to specific users. But remember, keep it simple!

The Business Model:

When presenting your business model the purpose is to describe your main revenue model (ex. Subscription, ads, affiliate, revenue share, etc.) Additional revenue streams should be mentioned as well. Describe the milestones you’ve reached in funding, product, users, revenue, growth, endorsements, partnerships, etc. If you haven’t reached any major milestones yet, that too is okay. Make sure to give a truthful depiction of where you are at, and use some metrics to help illustrate this.

Go-to-Market Plan:

You must showcase the strategies that will allow you to penetrate the market and gain users. More specifically, if you are a dealing with different consumer groups you must indicate the different channels you plan to use to acquire each customer. Specify the cost-per-acquisition (CPA) for all. Even though you might not have money at the start, you may have plans of putting together a sales team, establish strategic partnerships, distribution channels, content market and social campaigns. Makes sure to vocalize all of these elements.

Moving forward:

Here is where you get to the aftermath, hoping your hero is triumphant. You present a short-term and long-term plan for your business moving forward. Any exciting additional features or products in that you intend to explore? Plan on using new revenue streams? This is where you showcase the bigger vision you have for your business! Don’t forget to present your KPIs.

Roadmap and Round Objectives:

When going over your funding requirements, list the main allocations such as R&D, Sales and Marketing, Team Expansion, etc. Your “round objective” should indicate where you wish to be when you get to the next round of funding (for example: this will take us X months and X users/revenue/downloads, to breakeven and have positive cash flow).

The Team:

The Conclusion:

Whether your presentation has many, or very little slides is not of importance. Some superhero get one movie, while others get numerous sequels. This does not make one better than the other. What is important is that you have communicated your ideas simply and efficiently. Utilizing storytelling, while also using the essential founding elements for a pitch deck is the only way of getting the investor interested.

27Aug
Taglit’s Startup Innovation Center

In its short history, Israel has managed to become one of the world’s few startup capitals. It has become the startup nation with the third most companies listed on NASDAQ. Given Israel’s population of 9 million, various internal and external conflicts, and lack of natural resources, it has accomplished what most would consider to be impossible. Tel Aviv has built a reputation that reflects more than its beautiful beaches. Just go visit Taglit’s Innovation Center to see exactly what we are talking about.

The Innovation Center at the heart of Tel Aviv aims to display new advancements of Israeli Start-Ups in different fields. In collaboration with the Tel Aviv Stock Exchange, Taglit-Birthright built the “State of Mind” Innovation Center. It provides an opportunity to talk about the fact that this sliver of land has over 4,000 operating startups. Visitors can learn about Israel as an international leader in technology, engineering, and philanthropy. More specifically, ground-breaking inventions for agriculture, medicine, transportation, security, and outer space are displayed. What is unique about the Innovation Center is that it emboldens user interaction. The center puts up touch screens, tutorials and prototypes, allowing for visitors to explore and understand various innovations. This way people can understand exactly why the country is deserving of its “Startup Nation” title.

Each Taglit-Birthright group that visits the Innovation Center begins by exploring the interactive exhibition, and continues with a meet-up with a Ieading Israeli entrepreneur. Here are the names of just a few start-ups displayed at the Innovation Center that is destined to make revolutionary impact.

Electroad: This technology uses energy from the road to power electric vehicles using that road. Copper chains are inserted into grooves in the asphalt, then connected to a power converter on the side of the road that links to the city’s electric grid. This will revolutionize transport.
Pillcam: A tiny camera in a capsule. After the patient swallows the capsule, the camera can reveal any abnormalities and supplies essential medical diagnosis. A tiny wireless camera contained in an easy-to-swallow and disposable capsule about the size of a vitamin pill transmits images as it travels through the human body. This inventions makes excruciating exams, such as colonoscopies, much more endurable.
Skyfi: It is the world’s most advanced nanosatellite with larger cover area and bandwidth. This allows for better connection between more people, allowing us to become part of a global village. Basically, this is a much cheaper way of spreading internet globally.

Each startup begins with a need. Taglit Birthright had an unmet need to show groups the innovation side of Israel; and thus the center was born. The center was originally intended for Taglit participants, but curiosity and interest arose quickly. Now the center also hosts governmental and business delegations from all over the world, a variety of private and group tourist organizations, and all kinds of people who want a glimpse into the Israeli innovation scene.

Former Prime Minister Golda Meir famously said the God had made a mistake in sending the Jews to the only country in the Middle East with no oil. While it is true that oil may have made things easier, lack thereof has, without a doubt, forced Israel to find new and innovative ways to survive and transcend all expectations.

24Jul
Top 5 Legal Advice for Startups

legal. advice startups Starting your own business is an overwhelming process. In addition to all tasks you must accomplish in building your product or service, there are certain legal concepts you must understand. This will help you make the best decisions for your start-up. What may seem minor at the moment can have a large impact on your business in the future. Here is our list of the most important legal concepts entrepreneurs need to understand.

1. Why incorporation is necessary:

Incorporating your business has countless advantages. For one, it limits your personal liabilities. Limited liability means that a shareholder is not liable for the debts incurred by the company. To add, when your company is incorporated, shareholders usually only have rights against the corporation itself and not its owner. Of course, unless fraud is committed. Incorporating comes with advantages tax-wise as well. This includes lower income tax rates. It is also important for you to understand the difference between federal and provincial incorporation. One is not necessarily better than the other. It all depends on the nature of your business and the vision you have for it. The main difference between both is that federal incorporation will allow for you to do business across the country under a same business name, even if some other company is already using a similar name in a given province or territory. However, you are only able to operate from a given jurisdiction if you have incorporated provincially. So incorporating in Quebec, for instance, doesn’t mean you can’t do business nationally. It just means that you are required to operate your business from Quebec.

2. Why a shareholders agreement is needed:

While everything can go as planned at the early stages of business development, this may not always be the case. You and your business partner may disagree on issues like how to grow your business, what to do when unable to make a unanimous decision, or what would happen in a time of death or injury. A shareholders agreement is way to minimize potential business disputes between owners by clarifying how decisions are to be made. It also sets the stage for the procedure during a dispute resolution. Because it portrays a sense of stability, having a shareholders agreement also assists with funding from investors and potential business partners.

3. Why trademarks are important:

Protecting your business name and logo is crucial. If you don’t protect your name and logo at the very least, any business founded after yours has the right to use it and, more importantly, trademark it as their own. Having your name and logo trademarked will allow for legal recourse against those trying to use a same or similar logo or name. Your trademark will also appear when other entrepreneurs conduct a trademark search. The Canadian trademark registration process is fairly straightforward. All information can be found on the Government of Canada website. Remember that in order to trademark a logo or name, you must use it. Use it or lose it!

4. Avoiding legal problems with my employees

Navigating through the basics of employment law is necessary to avoid costly lawsuits. This should come with the understanding that company founders, like all others working in the company, should be classified as either contractors, or employees, and be compensated as such. For instance, founders can be paid with options, shares and restricted stock units only if they are classified as contractors. Otherwise, all people classified as employees must be paid minimum wage at the very least. In many cases, start-ups often look to hire unpaid interns. Though this may seem like a financially sound decision, hiring unpaid interns comes with its own set of guidelines and details. Unpaid internships are not permitted in Quebec, unless they fall under the three narrow circumstances listed in Quebec’s ALS (An Act Respecting Labor Standards). Because unpaid internships are becoming more popular you must ensure that you are complying with the regulations of the ALS. With labor laws constantly changing you must also remain informed on employment contracts, workplace injuries, and regulation on overtime.

5. Understand equity financing:

If you’re going down the route of equity financing you must understand the difference between equity and preference shares. Equity shares are ordinary company shares. Meaning that the amount of shares held by an owner is the portion of their ownership in the company. On the other hand, preference shares get priority over equity shares. This means that preference share owners get precedence on matters like distribution of dividend, and repayment of capital during liquidation. There are however, different types of preference shares depending on the amount of power you are willing to give away. This includes, participating preference shares, non-participating preference shares, convertible shares, non-convertible shares, cumulative shares and non-cumulative shares. Since equity financing involves trading partial ownership for capital, your control may be more diluted as a result. The real question is how much influence you’re willing to give up and legal repercussions involved.

You may be wondering whether spending money on a lawyer so early in the game is necessary. You may also contemplate taking on the legal work on your own. What you should keep in mind is that there are certain aspects of running a business that should not be compromised. You should not be looking to save money when it comes to legal activity. It is may be costly now, but suffering the consequences of lack of legal expertise will cost you a lot more later on.