Forms of Business Organization
From a legal point of view, there are four types of businesses:
1. Sole proprietorships
2. Partnerships
3. Corporations
4. Co-Operatives
A brief description of each type is followed by a summary of their advantages and disadvantages on the following pages. For specific information on how or where to register or incorporate a business, contact:
Saskatchewan Justice, Corporations Branch
2nd Floor, 1871 Smith Street, Regina, Sk S4P 3V7
Phone: (306) 787-2962 Fax: (306) 787-8999
E-Mail: corporations@justive.gov.sk.ca
For additional information and all available forms, visit their Web site at:
Private Corporation
A "private corporation" can be formed by one or more people. A majority of its directors must be Canadian residents and at least one must reside in Saskatchewan. A private corporation cannot sell shares or securities to the general public.
Public Corporation
A "public corporation" is one that issues securities for public distribution. Besides filing incorporation documents, a public corporation must file a prospectus with the Saskatchewan Securities Commission, must employ outside auditors, and, must distribute semi-annual financial statements.
Federal Corporation
Private and public corporations may be incorporated federally under the Canada Corporations Act. A firm operating nationally or in several provinces may find this advantageous A federally incorporated business must still register in each province in which it does business.
Information and incorporation documents are available from the Corporations Directorate, Industry Canada.
Industry Canada Corporations Directorate
365 Laurier Avenue West, Ottawa ON K1A 0C8
Phone: (613) 941-4550 Fax: (613) 941-0601
Website:
http://www.strategis.ic.gc.ca/sc_mrksv/corpdir/engdoc/homepage.html
4. Cooperatives
A co-operative is a corporation organized and controlled by its members, who pool resources to provide themselves and their patrons with goods, services, or other benefits. A co-operative business structure provides:
. Democratic control based on one member one vote
. Open and voluntary membership
. Patronage dividends
A co-operative is identified by the use of the words 'Co-operative,' 'Limited,' or 'Ltd.', which must be included with the corporate name in all business transactions. Co-operatives are categorized under three different acts:
. The Co-operatives Act 1996 consists of provincial legislation that applies to all co-operatives in Saskatchewan, with exception to new generation co-operatives';
. The Canada Co-operative Act provides for federal incorporation of co-operating in at least two jurisdictions. These particular co-operatives must register under the Co-operative Act 1996;
. The New Generation Co-Operative Act restricts the business of the co-operative to one or more of the following endeavors or businesses:
a. The Production, processing, or marketing of agricultural products
b. The provision of services to persons primarily engaged in an endeavor mentioned in Section A.
ADVANTAGES AND DISADVANTAGES OF EACH FOR OF BUSINESS ORGANIZATION
SOLE PROPRIETORSHIP
Advantages
. Relatively low start-up costs
. Greatest freedom from regulation
. Owner in direct control of decision making
. Minimal working capital required
. Tax advantages to owner
. All profits to owner
Disadvantages
. Unlimited liability
. Lack of continuity in business organization in absence of owner
. Difficulty raising capital
PARTNERSHIP
Advantages
. Ease of formation
. Relatively low start-up costs
. Additional sources of investment capital
. Possible tax advantages
. Limited regulation
. Broader management base
CORPORATION
Advantages
. Limited liability . Specialized management
. Ownership is transferable
. Continuous existence
. Separate legal entity
. Possible tax advantage
. Easier to raise capital
CO-OPERATIVE
Advantages
. Owned and controlled by members
. Democratic control (ie. One member, one vote)
. Limited liability
. Profit distribution (surplus earnings) to members in proportion to use of service; surplus may be allocated in shares or cash
Disadvantages
. Unlimited liability
. Lack of continuity
. Divided authority
. Difficulty raising additional capital
. Hard to find suitable partners
. Possible development of conflict between partners
. Closely regulated
. Most expensive form to organize
. Charter restrictions
. Extensive record keeping necessary
. Double taxation of dividends
. Possible development of conflict between shareholders and executives
. Possible development of conflict between members
. Longer decision making process
. Requires members to participate for success
. Extensive record keeping necessary
. Less incentive to invest additional capital
BUSINESS PLAN GUIDE
The outlines intended to assist an entrepreneur in writing a BUSINESS PLAN for the establishment, the purchase, or the expansion of an existing business.
What is a Business Plan?
A business plan is a recognized management tool used by successful and/or prospective business of all sizes to document business objectives and to propose how these objectives will be attained within a specific period of time. It is a written document, which describes who you are, what you plan to achieve, where your business will be located, when you expect to get under way, and how you will overcome the risks involved and provide the returns anticipated.
Why do you need a Business Plan?
A business plan will provide information of your proposed venture to lenders, investors, and suppliers to demonstrate how you plan to use their money, and to establish a basis for credibility of your project.
When should a Business Plan be prepared?
The sooner you develop your business plan, the better. You will find the final copy of your business plan may differ from the original draft, as you will be updating, revising and refining it as you go. It is important that you examine all the relevant factors now. Therefore, you will be able to anticipate any surprises after your business has opened its doors.
Who should prepare a business plan?
The business plan should be prepared by those persons who will be implementing it.
Outside assistance from consultants, accountants, bookkeepers, and experienced business people can definitely help, but you must draft the initial plan. After all, you are the one that is going to run the business once it is open.
Think through each element of your business plan thoroughly, so you have a good understanding of the overall picture and all of the details.
Present your plan to others for constructive criticism and advice, and try to profit from their experience. Modify your plan if necessary.
Business Plan Steps
1. Executive Summary/Business Description
Briefly describe:
. If this is a new business venture, expansion of an existing business, or the purchase of an existing business
. The type of business actively in which you are engaging (manufacturing, wholesale, retail, food processing, service, high technology, etc.);
. Your product or service and its uniqueness;
. The market to be served;
. Your advantage over the competition;
. The main objectives of your organization;
. Your management background;
. The project time frames involved.
(This should be no more than a page summary of your business plan)
. In addition, briefly describe what form of business structure you have chosen:
. Sole proprietorship
. Partnership (enclose agreement);
. Corporation (enclose shareholders agreement);
. Co-operative (enclosed membership agreement).
Include:
. Date the business was registered/incorporated;
. The business name and address;
. The business phone number;
. The principal(s) name(s) and telephone number(s);
. The percentage of business or number of shares held by each (in partnership or corporation);
. The website address and relevant email addresses.
2. Project Costs and Project Funding
Identify the costs of the proposed business venture and the sources of the project funding.
Project Cost Summary
Land and Buildings ______________________________
Leasehold Improvements (renovations) ______________________________
Equipment/Furniture ______________________________
Other Assets (goodwill, franchise, etc.) ______________________________
Vehicles (if used in the business) ______________________________
Inventory (opening cost) ______________________________
Other Start Up Expenses as per Cash Flow ______________________________
(accounting, taxes and licenses, insurance, rent, Supplies, etc.) Working capital ______________________________
Total Project Cost ______________________________
Project Funding
Equity ______________________________
-cash
-contributed assets
Land and Building Mortgage ______________________________
Equipment Loan ______________________________
Other Loan ______________________________
Line of Credit (L/C) ______________________________
Grant/Subsidy ______________________________
Total Project Funding ______________________________
TOTAL PROJECT COSTS AND PROJECT FUNDING MUST BE EQUAL!!
3. Product/Service
Describe the products to be produced or the services/goods to be provided.
What makes your product/service unique, or how is your business different from others in the industry?
What are the features/advantages that will entice customers to buy from you? (ie. Convenience, service, performance)
Will you offer any product or service guarantees/warranties?
Provide information on any patents, trade secrets, or other technical advantages over the competition.
4. Marketing
. Identify the total market for your product or service.
. To whom are you targeting your product or service?
. Identify your competition detailing their strengths and weaknesses, and your opportunities and threats relative to them.
. How will your competition react to you entering the market?
. What are your past sales (if applicable) and future projections?
. What price (manufacture, wholesale, retail, etc.) do you intend to charge for your product/service and how does it compare to the competition?
. What are your selling terms (cash or credit)?
. Identify promotional campaigns that will be used.
5. Operating Requirements
Identify your facility requirements as to the size, location, and type of premises. Include drawings of the proposed building layout. Attach the most recent real estate appraisal, offers to purchase or lease agreement, supplier quotations, etc. Indicate why you have selected this location.
Provide details relating to special requirements as to water, power, compressed air, ventilation, heat, air conditioning, drainage, disposal, Department of Health requirements, etc. Attach most recent approvals from Public Health, Liquor Licensing, city zoning, etc.
Provide a detailed listing (including legal descriptions) of the land and building(s), leasehold, improvements, equipment and furniture, vehicles, inventory, and other assets. The listing should include the proposed purchase price of each asset.
Provide a general description of the day-to-day operations of the business (include hours of business, days open, seasonality of business, suppliers and their credit terms, etc.).
Provide product/manufactured cost estimates (if applicable).
6. Management
What is the proposed organization chart of the company (ie. Who does what?) Include a brief job description for each position.
Provide brief management biographies of the key personnel (include their ages and backgrounds in this type of business).
State the compensation package (salary, bonus, profit sharing, etc.) for each member of management.
7. Personnel:
List employees (not owner or manager) using the following headings:
Position: full-time, part-time, seasonal, temporary Method of payment: hourly, monthly, commission, etc.
Provide a job description for each position, identifying the responsibilities and duties involved.
If job training is required, identifying the duration and the cost of the training.
8. References:
Identify the Name, E-Mail Address and Phone Number of:
Accountant
Banker
Consultant
Insurance Company
Lawyers
9. Financial Projections:
Provide a projected (pro-forma) Three Year Cash Flow, Balance Sheet, and Profit or Loss Statement
10. Additional Information:
It is common for a financial institution to request that the principal(s) submit, with a loan application, a statement of personal net worth. This form is usually provided by the financial institution. If applicable, historical financial statements on the business venture may also be requested. Other supplementary and supporting documents for your business plan should be included in appendices.
The following web sites may assist you in preparing your business plan:
Interactive Business Planner
http://www.cbsc.org/ibp
Royal Bank-Tools for Business
http://www.rbcroyalbank.com/RBC:ShP5E6wWAA8AD5AmyWg/sme/index.html
Strategic Business Planning Co.
http://bizplan.com
TD Business Planner
http://tdcanadatrust.com/smallbusiness/planner.jsp
LENDING-THE BASIC CRITERIA
Anybody who lends money always considers (to a various degree) the following factors:
1. Repayment Ability What evidence exists to convince me I'm going to get paid back?
2. Management What evidence exists that indicates that this person can manage his/her affairs well enough to allow the opportunity for payback?
3. Investment What evidence exists that this person has enough of a commitment to the business so that I'll be sure he/she wants to work hard to protect it?
4. Security If all else (above) fails, what protection do I have to get my money back? What will it be worth when the business fails?
5. Equity Most lending institutions will require at least 25% cash/equity contributed to the total capital cost of the project.
Remember, it is quite unusual for all of the above factors to be completely satisfied. One or two pointes will most likely be stronger than the rest. Do not be discouraged if this is the case. Make sure that you focus on the strong points and are aware of the weak ones.
SOME TIPS FOR THE PRESENTATIONS TO LENDING INSTITUTIONS
1. Be absolutely familiar with all the data in the proposal.
2. Do a trial run presentation with a confidant. (Try some stress-producing questions
3. Never just 'drop in.' Be sure to arrange a definite appointment with the appropriate manager. Confirm a day in advance. Do not accept a "Come in any time" appointment.
4. Unfortunately, managers have difficulty with their appointment schedules. Therefore, decide whether or not you wish to wait. If not, reschedule your appointment. Never leave your proposal for the lender to review.
5. Attempt to find out if the manager has formal authority to grant the amount of the loan requested. If not, make sure that he/she understands your proposal, as he/she now has to represent you to his/her superior(s).
6. If you do not feel confident with the manager's understanding of your proposal, you are better off to shop around.
7. As one of your conditions for the loan, advise your manager that he/she should visit your business. Pick him/her up and return him/her if necessary. It is also a good idea to take your manager out for a friendly business lunch at least once every 12 months.
8. Often business owners start their business accounts with the branches they deal with personally. However, many banks are now formally dividing up operations between branches that specialize in business (commercial_ accounts and those that handle personal accounts. Whatever the case, make sure that you deal with a trained commercial leader.
9. As in any business, banks often put their best people where the action is. Similarly, large branches frequently have the better commercial lenders. Their interests are focused on the best money making accounts, which may not be yours. Smaller branches generally offer more personalized service. You will have to decide which is the best lending institution for your business needs.
10. Good lending officers are frequently transferred, and often their clients are not encouraged to follow them. If this happens to you, insist on following your lending officer to his/her new posting. It is important to continue doing business with a representative who understands your business. Even though the bank may not like you following him/her, they would rather keep your business than lose you to a competitor.
11. Bankers are cautious and conservative. You must be 100% honest with your banker. Any misleading information may destroy the all-important mutual trust that is required.
12. Experience clearly shows that business owners who keep their banker informed of their successes and failures get the best co-operation when having difficulties. Our banker should expect your business to have financial peaks and valleys.
13. Banking is basically "You give me what I need and I'll give you what you need." Just be sure of what you need and what you are prepared to pay for it.
14. Try to plan your financing so that your proposal does not appear "urgent". Planning is an essential management quality. It is also a significant criterion for loan proposals. "Urgent" proposals tend to reveal a weakness in management.
VENTURE CHECKLISTS
The following checklists are meant to assist you in assessing each point against your business plan.
Marketing
Nature of the Market
. Number of potential buyers, by region;
. Number of existing buyers, by region;
. Profile of buyers.by age, income, occupation, education, sex, family size, etc. by region;
. Profile of users (if buyers and users are different) by region;
. Where buyers and users live.by region, city size, urban, suburban, rural;
. Where buyers buy.urban, suburban, rural, trading centre, local, type of store;
. Size of purchases;
. When buyers buy.time of day, week, month, year, and frequency of purchase;
. How buyers buy.attitudes motivation, trends, styles;
. Who influences buying decisions.by type of product and brand, uses of product;
. Unfavorable attitudes of buyers and brand;
. Indications of changes in buying habits.
Structure of Your Market
. Number of competitors;
. Number of brands.national, regional, local;
. Share of market by brands.total, regional, city size, type of store;
. Characteristics of leading brands;
. Differentiation of own brand from leading brands.strength/weaknesses/opportunity/threat analysis;
. Policies, presentation, methods and tools of principal competitors.
Product Profile
. Quality.materials, design, durability, safety, method of manufacture and workmanship;
. Models, sizes, colours, flavors, etc.;
. Luxury, standard, essential;
. Convenience of shopping.
Package
. Protection.shipping, handling, theft, tampering, spoilage, etc.;
. Utility.measures, closure, reseal, disposable, reusable, etc.;
. Identification.universal product code, visual exposure, colour, label;
. Display.versatility for stacking, hanging, filing, etc.
Name Brand
. Legal.logo, trademark, copyright, industrial design, song;
. Image.memory value, goodwill value, recognition,
suggestiveness, pleasingness, generic original.
Service
. Installation.who, when, cost, delivery;
. Maintenance.who, when, cost, convenience;
. Repair.who, when, cost;
. Warranty.who, when, how long;
. Accessories.aftermarket, compatible.
Place in the Market
Distribution Channels
. Number of retailers.each type by reason;
. Number of wholesalers.each type of region;
. Per cent of retailers.each type, handling brand by region;
. Aggressiveness of retailers, co-operation by religion, store type and city size;
. Indications of shift in relative importance of channels.
Promotion
Personal Selling
. Recruiting and selection.methods, qualifications, standards;
. Training.methods, skill development, motivation;
. Supervision.performance reviews, development;
. Compensation.commission, bonus, benefit plans.
Advertising
. Effectiveness.comparison of spaces purchased, timing, appeals and themes, black and white vs. colour;
. Cost effectiveness.various media, style, background, placement;
. Product effectiveness.feature products, merchandising.
Sales Promotional
. Co-operative advertising;
. Deals, premiums, coupons, discounts, bonus gifts, displays;
Publicity
. Announcements, press releases, mentions.
Price
. From factory.volume capacity vs. demand;
. To wholesalers.by type, size and region;
. To retailers.by type, size and region;
. Discounts.functional, volume, cash, other;
. Allowances and deals;
. Service charges;
. Price stability.commodity influences such as energy, labour, weather, technology.
Strategy
. Selection of a target market(s);
. Development of a marketing mix [product/price/place/promotion];
. Implementation and monitoring strategies.
Operation
Location
. Traffic patterns;
. Parking;
. Zoning;
. Local development;
. Trends;
Facilities
. Lease/purchase;
. Utilities;
. Storage;
. Expansion potential;
. Fixtures and equipment;
. Leasehold improvements;
. Layout;
. Installments.
Operating Systems
. Production;
. Inventory
. Record Keeping
. Job Procedure
. Maintenance
Operating Assistance
. Lawyer;
. Accountant
. Management consultant
. Engineering services;
. Financial services
. Manpower services
Finances
Capital Structure
. Equity (25%)
. Current assets
. Current liabilities
. Fixed Assets;
. Long term debt
Operating Forecast
. Sales
. Cost of Sales
. Gross Margin
. General Operating Expenses
. Net profit/loss
. Income tax payable;
. Cash flow analysis
. Contingency analysis
. Risk analysis
. Inflation impact analysis
. Interest rate impact analysis
Financial Services
. Bank/credit union
. Mortgage lender
. Insurance coverage
. Bonding
. Trade credit
. Venture Capitalists
. Background equity
. Government programs
Organization
Legal Structure
. Proprietorship;
. Partnership;
. Private Corporation;
. Public corporation
. Co-operative
Registrations
. Trade names/copyrights
. Trademark/logos
. Business license
. Permits
. Provincial Sales Tax
. Excise Tax
. Goods and Services Tax (GST)
. Professional or trade licenses
General Arrangements
. Contracts
. Business forms
. Personal Will
. Buy/Sell Agreement
. Cross insurance
. Key man insurance
. Occupational health and safety
Staff . Skilled
. Unskilled
. Professional
. Supervisory
. Qualification standards
. Job descriptions
. Wages and salaries
. Performance strategies
. Staff benefits
. Staff training
. Employee evaluation and appraisal standards
Management
. Can management prepare and implement a sound business plan?
. Does management have adequate authority and control to fulfill its responsibility?
. Do training programs encourage personal skill development towards increased responsibility?
. Can management change be introduced as required to benefit the business? Even if the changes require a new manager?
. Does the manager have the qualities of time, character, stamina, planning, control, development, leadership, decision-making, confidence, practical realism? And commitment?
Preparation and Commitment
. Have you obtained independent legal advice on all contracts?
. Are all financial commitments finalized? In writing?
. Does the business plan have time in its favour?
. Are you prepared to lose your business investment?
. Are you prepared to succeed?