Startup Success: An Entrepreneur’s Answers to Your Startup Finance Questions

Sage recently hosted a session at Vancouver Startup Week 2021 called ‘Setting up for financial success’ in which Alex MacCaull, founder of HMS Financial answered the most frequently asked questions startups have.

Alex’s entrepreneur journey, started with his departure from his full-time job as a financial services advisor in Ontario. He worked a number of contract jobs in Canada and overseas. In 2010, his first business, a marketing company, was ultimately short lived, but he took the learnings from this experience to rebound with a new project, HMS Financial, in 2011. The business is celebrating its 10^th anniversary this year and is continuing to grow.

In your opinion, how can you turn an idea into a successful business in 2021?

The first step is to identify the existing opportunities in the market. Find something that nobody wants to do and make a business out of providing the solution or service that fills the demand. To expand on the opportunity even further, you can make a business out of teaching what you do to others.

What advice would you give to would-be entrepreneurs who are worried about startup costs?

From a financial perspective, just make sure to be realistic about how much things are going to cost.  Try to come up with a projection for how much it’s going to cost to start the business, how much it could reasonably make, and how much it will cost to run. If you’re going to be doing any borrowing, being able to show the details in a business plan should help to gain approvals.  Having done the planning ahead of time, you’ll be in a good position to keep the business financially on track.

Can businesses do their own bookkeeping?

They absolutely can. In the early days I started doing the books for HMS Financial myself, with the help of my assistant.  we did all of the bookkeeping ourselves in-house.

When do new businesses typically start to think about hiring a bookkeeper or accountant?

When we started to grow about three years in, we hired a third staff member. Instead of training them on the bookkeeping, we made a conscious decision not to do this in-house anymore and to reach out to a dedicated professional.

If the bookkeeping in your business is a monthly duty, it’s possible that you or your staff will have to spend time relearning the process each month. This can make it feel like a chore, and that can lead to procrastination.  In my experience, daily skills are easier for a new staff member to pick up than weekly, monthly, or annual ones.

As a former financial advisor, what is the top money mistake you have seen startup businesses make?

I would say that some new business owners don’t always have the financial discipline for their business finances that they might have in their personal life, especially in the early stages. There’s a temptation to spend in order to grow before you are really ready. You need to be lean and cost efficient in order to drive the business forward. Later on, as your business gets more successful, you can afford to be a bit more free-handed. For my own business it took about six years to get to that stage, but everyone’s situation is different.

Should a startup business incorporate and when should they do it?

Before I answer that, don’t forget in Canada you can start doing business in your own name, or by getting a business number before incorporation. If it’s your first business, you might want to go about it that way.

You can always incorporate later if things really take off. If you’re more experienced or your business involves substantial borrowing right from the start, incorporating could be worth it for you.

We’re lucky that fees to incorporate in Canada are low and the paperwork is quite straightforward compared to other countries. I’ve been trying to start a new project in Brazil for over three years and the costs are astronomical!

How much should startup owners pay themselves?

For my own situation, I looked at what an entry-level employee would be paid in my industry as a starting point. You’ll need to swallow your pride and pay yourself that much until you are confident you can afford to pay yourself more. Before HMS I was paid an annual salary as a Financial Services Advisor. So, I set my salary at that – and it stayed there for six years. Sometimes it was hard to be sure I should keep going when I saw that my peers were making more. But eventually I was able to bring the figure up, and now I make a good living as the primary decision maker at my place of employment. Not everybody cares about that, but for me it’s beyond price.

How can a business keep control of their expenses?

It’s all about planning. In your first year you can use your business plan as a guide for operational costs and your budget for expenses. In the subsequent years you should repeat this planning process annually. Every year, HMS produces a business plan which includes the previous year’s financials, and a forecast of expenses for the next year by budget category.

It all started with an estimate before we started operating, that grew into an annual forecast that is now an integral part of our planning. I actually still have the original budget, it’s fun to go back and look at it sometimes.

If you’re a startup owner getting ready to do your business books for the first time Download Your Free Quick Start Guide to Bookkeeping.

This article is part 2 in the series Startup Success. You can read part 1 here:  The Most Popular Expenses, Taxes and Bookkeeping Questions Answered