How to start a business in Canada
When you’re kicking off a new business, there’s a lot to consider — from choosing a structure to getting it registered to understanding your tax obligations.
Starting a business can feel like a lot to tackle at once. Fortunately, it gets much easier when you break it down into manageable steps. In short:
1. Start by reviewing your basic concept, taking stock of what you'll need and making sure there's a market for your idea.
2. Choose a business structure and create a simple business plan.
3. Pick a name for your business and register it, then get a Business Number if you need one. You’ll also want to understand your tax obligations.
4. Check whether you need any permits or licenses.
5. Plan for start-up costs and cash flow.
6. Track your income and expenses, while keeping your business and personal costs separate.
Let’s dive into each of these items in more detail. Here’s a step-by-step look at what you need to know to get your Canadian business up and running.
Note that this guide only covers Canadian federal and provincial/territorial requirements. Be sure to check your local regulations before getting started.
Before you start: What should you have ready?
Before you start selling products or signing clients, take some time to nail down the basics: What are you selling? Who are you selling it to? And how will your business make money? These might sound like simple questions, but answering them now can save you a lot of time — and potentially money — later.
Next, think about what you’ll need to get started. That could mean inventory, equipment, employees or a physical space, depending on your business.
It’s also time to consider how long it will take to get off the ground. Registering a simple business can be relatively quick, but the process varies depending on your business structure, location and whether you need to incorporate.
Finally, put together a rough first-year budget. Give yourself some breathing room, too: unexpected costs have a way of popping up when you’re starting something new.
Step 1: Validate your business idea
Starting a new business can be a risky, labour-intensive process, so before you start, take time for a reality check. In other words, is there a real market for what you want to sell? Will people actually pay for what you’re offering? And if there are already similar businesses out there, what will make yours stand out?
A few questions to ask yourself before you get too far:
• Who are your customers?
• What are they looking for?
• Are there any gaps in the market that you could fill?
• Who is your competition?
This initial market research can help you hone your business idea to better ensure there’s a demand for what you’re offering. Visit Statistics Canada’s Small Business Hub to do some research on other companies in your sector, or access Canadian industry and small business statistics.
Step 2: Write a basic business plan
Now it’s time to get your plan down on paper. Think of it as a roadmap for your business, so you know what steps to follow to get it off the ground. You might also consider crafting a brief “elevator pitch” of a few sentences that you can pair with this plan for conversations with potential lenders or investors.
Here are some elements to include in your plan:
• Executive summary
• Mission statement
• Market research
• Sales and marketing
• Operations
• A first-year financial plan including projected revenue, expenses and cash flow
Once you've got your plan in place, it's time to think about the money side of the business.
Step 3: Choose your business structure
This decision can affect how your business is taxed, how much paperwork you'll have and whether you're personally responsible for the business's debts. The right choice depends on the type of business you're starting, whether you're going into business with anyone else and how you see it growing.
You can choose between a sole proprietorship, a partnership or a corporation. Here are some of the key factors to explore when making your choice:
| Structure | Ownership/ liability | Taxation (in general) | Setup costs | Best for | Keep in mind |
|---|---|---|---|---|---|
| Sole proprietorship | One owner; the business and owner are not separate legal entities | Business income is reported on the owner's personal tax return | Often the lowest-cost option; registration fees may apply depending on the province/territory | Solo business owners who want a simple structure | The owner is personally responsible for the business's debts and obligations |
| Partnership | Two or more partners; partners share profits and losses according to their agreement | Each partner reports their share of the partnership's income or loss. A partnership information return may be required for the partnership. | Often relatively inexpensive; a written partnership agreement may involve legal fees | Two or more people going into business together | Partners are responsible for the partnership's obligations; a clear partnership agreement is important |
| Corporation | At least one owner; the corporation is a separate legal entity from its owners | Corporation files its own income tax return | Higher setup and ongoing costs | Businesses seeking a separate legal entity and potentially to grow | More administration, record-keeping and ongoing costs |
One thing to note is that you’ll have to decide whether to incorporate federally or at the provincial/territorial level. If you’re not sure which structure is right for you, consider talking to a professional, such as a lawyer or accountant.
Step 4: Choose and protect your business name
Choosing a business name can be one of the more fun parts of starting a business, but don’t get too attached to your favourite just yet. Before you put it on a website, business card or storefront, make sure someone else isn't already using it.
Your name should be
• Distinctive;
• memorable;
• appropriate to your business; and
• available.
Before landing on a name, search Canada's business registries and the Canadian corporate names and trademarks database (Nuans®) to see whether a similar name or trademark already exists. If you want to protect your brand more broadly, you can also explore registering a trademark through the Canadian Intellectual Property Office (CIPO).
Once you've settled on a name, check whether the matching website domain and social media handles are available, too.
One thing to note is that if you’re a sole proprietor and you want to operate under your legal name, you generally don’t need to register a business name. If you use a different name, you generally need to register it as a trade name, with registration handled at the provincial or territorial level.
Step 5: Register your business and get a business number
Got your structure and name figured out? Now it's time to make things official. Where you register and what you need to register for depend on your business structure and where you operate.
For sole proprietors or partnerships: You generally register your business with the province or territory where you operate.
For corporations: You can incorporate federally or at the provincial or territorial level. If you’re planning to keep things local you can incorporate with your provincial (or territorial) government. If you’re going to operate in other provinces or territories as well, you will likely also need to register at the federal level.
You may also need a Business Number (BN) from the Canada Revenue Agency. It’s a nine-digit identifier for your business. When you register for a program account, such as GST/HST, payroll and corporation income tax, a program identifier and reference number are added to your BN. Not every business needs a number, so check the CRA requirements before you sign up for one., so check the CRA requirements before you sign up for one.
You can find the appropriate registration process through Canada.ca's business registration guide. If you need a BN or CRA program account, you can register through the CRA's Business Registration Online.
Step 6: Understand your tax obligations
Taxes are part of running a business, so it’s worth understanding your obligations from the start. If you make taxable sales or supplies, you'll generally need to register for GST/HST once you're no longer considered a small supplier. For most businesses, that means exceeding $30,000 in taxable revenue in a single calendar quarter or over four (or fewer) consecutive quarters. Once you're required to register, you'll need to charge and remit the applicable GST/HST. You can also choose to register voluntarily while you're still a small supplier.
Planning to hire employees? You'll have some additional tax responsibilities, including withholding and remitting income tax, CPP contributions and EI premiums.
Taxes can feel intimidating, especially when you're filing for the first time. If you're unsure where to start, an accountant can help you understand your obligations and get your first return right.
The CRA also offers resources for small business owners, including its Liaison Officer service.
Step 7: Get the permits and licenses you need
Not every business requires permits or licenses, but it's important to make sure you have the ones that apply to your business before you start operating. The permits and licenses you need depend on both your business and where you operate, so be sure to check local zoning and business licensing rules. You can use BizPaL to get a free list of permits and licences that may apply to your business at the federal, provincial/territorial and municipal levels.
Step 8: Set up your business finances
One of the best things you can do from day one is keep your business and personal finances separate. It makes it easier to see how your business is doing, keep track of expenses and stay organized when tax time rolls around.
From the very beginning, track your income and expenses carefully, and hold on to those receipts for the CRA. A dedicated chequing or savings account helps business owners keep their finances organized and separate, making bookkeeping and taxes easier.
Need help with those start-up costs? There are a variety of ways businesses can cover them, such as grants, subsidies for new businesses, and investors, among others. A good place to start is Canada’s Business Benefits Finder. Down the road, some business owners explore financing options as their businesses grow.
READ MORE: 5 reasons to have a dedicated account for your business
Common mistakes new business owners make
You've got the basics covered. Now, here are a few common mistakes and how to avoid them.
• Mixing business and personal finances. This can cause tax headaches, cash-flow tracking problems and possibly legal issues.
• Choosing the wrong business structure. For example, if you choose a corporation when you should have chosen a sole proprietorship, you’ll have to spend time, energy and money dissolving the corporation down the road.
• Hitting that GST/HST registration threshold without charging tax. Once you're required to register, you typically need to start charging GST/HST from your registration date. Understanding the $30,000 small-supplier threshold and tracking your taxable sales can help you avoid surprises.
• Overlooking permits and licences. Make sure you check the requirements for your industry and location before you start operating.
• Forgetting to set money aside for taxes. Consider putting aside a portion of what you earn throughout the year so you're not scrambling when your tax bill comes due.
• Underestimating cash-flow needs. Revenue and profit aren't the same thing, and a new business can have periods when money coming in doesn't cover bills, taxes or other expenses going out.
Start your business on the right financial footing
Starting a business is a big undertaking, but you don't have to figure everything out at once. Start with the basics, keep your business and personal finances separate and build good financial habits from day one.
