hey guys it's adrian here the canadian in the t-shirt and today i'll be breaking down the things
you need to consider before you start a business in canada there are a ton of benefits to starting
a business in canada but there are some downsides as well and they can cost you a lot of time stress
and money some of them are fairly obvious but there are quite a few unexpected drawbacks as
well which i will cover in this video it is so important for all canadians to build their passive
income so that you're not entirely reliant on your job to survive and retire one day one of the best
ways for anybody to build passive income is to invest and i have dozens of videos on how to get
started with investing even if you're an absolute beginner another powerful strategy is to build a
side business building a business from nothing is a constant challenge it's something that i
love but it's definitely a risk and unfortunately it's not feasible for everyone and this video will
cover why this is the third video in my canadian business guide in the previous videos i covered
why you should start a business and how to start a business in canada make sure you check those
videos out there are a ton of financial personal and tax saving benefits to starting a business
so i definitely encourage this for most canadians but i don't want you to get overly excited throw
caution to the wind quit your job and become an entrepreneur overnight it doesn't work like that
in fact in both those videos i stress the fact that you should start out as a side business
while you continue to work your full-time job doing this will alleviate some of the downsides
that i'll talk about and throughout this video i'll keep coming back to this point to emphasize
why keeping your regular job while building your business on the side is the best course
of action for most canadians so let's get started one of the obvious downsides to running a business
is that you're on your own you are entirely responsible for every aspect of your business
that can be wonderful you have total freedom and total control over the operation of the business
you don't have to ask your boss for permission you call the shots and you make the decisions but on
the other hand you don't have the security or the safety net of a regular job the livelihood of the
entire business and all of your employees rests on your shoulders this is a huge amount of pressure
far more than the majority of jobs when you work a full-time job as an employee you can
always count on that paycheck every two weeks canada has extensive labor laws to protect your
rights as an employee your boss can't just fire you at the drop of the hat or reduce your salary
unless of course you break the law or violate the company's code of conduct but generally speaking
you have the comfort of job security and you have that reliable income coming in every few weeks and
even if you do lose your job your employer will usually give you several weeks notice and likely a
severance package so you'll still have some income to get you by but when you run a business you
don't get any of that protection if your business doesn't make any money you don't get paid if you
don't have any clients and you don't make any sales your income stream dies there's no two weeks
notice no severance nothing your income stream can die overnight and even worse if you have employees
they are still counting on you to pay their salary so you'll have to dip into your own savings to pay
them or you might even have to let them go don't underestimate the mental toll that this can have
on a person when you work a job of course you should work hard and take pride in what you do
but let's face it you don't always have to give it a hundred percent in any job there will be
times where work is slow and you can take it easy and you still have a reliable paycheck coming in
but when you run a business you don't get that luxury if you don't work if you don't provide
value to your customers and make sales you don't get any money there's no guaranteed income or
stable salary to fall back on your business needs to always be generating revenue and that usually
means working your butt off every single day especially for the first several years no matter
what you do there will be stress but if you work a job as an employee you have certain rights to help
deal with the stress you have paid vacation days paid holidays sick days and personal days these
are so important and please take advantage of them because you will miss them when they're gone
when you need a break you can take time off work and still get paid for it but again if you run a
business you don't get that as a business owner you have total freedom so yes you can decide to
give yourself a day off but that means that you probably won't earn any money that day
your business isn't a person it doesn't care if you're sick it doesn't care if it's a weekend or
even if it's a holiday if you don't work if you don't make any sales you don't get paid of course
eventually the goal is to build systems so that your business can operate and earn revenue without
depending on you every single day but it usually takes years to get to this point that's when your
business can finally become a source of passive income but when you're first getting started
your business will only work if you work and it's not just about your paycheck or job security
as an employee you also have other benefits on top of the salary most canadian employees have
health benefits which are paid by their employer things like dental plans eye care physiotherapy
discounts on prescription drugs these benefits can provide enormous value to your health and they can
save you hundreds or even thousands of dollars every year especially if you have kids but if
you're self-employed as a business owner you don't get these benefits anymore these are all expenses
out of your pocket every time i go to the dentist now i have to pay 200 to 300 and if i need new
glasses it will cost me 300 to 400 plus the cost of an eye exam and that's just for myself imagine
if i had to pay for an entire family as well don't underestimate the value of these employer health
plans so please use them and take advantage of them because you will miss them when they're gone
i should note that as a business owner you can purchase private health and dental plans but
they can be very expensive and they're usually only worth it if you have many employees if it's
just yourself you're better off just paying these expenses when you need them out of your own pocket
this is one of the reasons why i caution people against quitting their job outright when they
start a business instead keep your regular job and work on building your business on the side yes it
will be hard you will have to sacrifice evenings and weekends but you will still have your secure
and reliable salary to support you and you will still have all those health benefits
and paid vacation time to enjoy and you can even use that vacation time to build your business
even further that way your employer is effectively paying you to build your business when you start
a business you lose that safety net you are on your own it's up to you to earn an income that's
pretty obvious but there are some more downsides that a lot of entrepreneurs don't realize in my
past videos on canadian taxes i explained how business income offers huge tax saving benefits
over regular employment income however there are a few areas where running a business can cost you
more money in taxes than a regular job a big one being cpp cpp is the canadian pension plan it's
a federal pension program that we all pay into to help fund our retirement usually at the age of 65.
all working canadians are required to pay into this pension plan every single year from the age
of 18 to 64. you'll notice from your paycheck that there will be a cpp contribution amount
deducted from each paycheck in addition to income tax and employment insurance
this cpp deduction will be 5.7% of your salary for the year 2022 up to a maximum limit for the year
for 2022 this max limit is 3 500 once you have contributed this maximum 3 500 into cpp
the cpp deductions stop so for the rest of the year your paychecks will be a little higher you'll
only reach the cpp maximum if you have a salary above 65 000 in the year 2022. for example if
you have a salary of 80 000 you'll notice that in october your paycheck will increase by about 170
that's because at that point you have maxed out your cpp contributions of 3 500 so for the rest of
the year you get to enjoy that extra 170 from each paycheck what you might not know is that while
you are paying this 5.7% tax into the cpp your employer is also paying the same amount on your
behalf your employer is required to match your cpp contributions this happens behind the scenes
so you are paying up to 3 500 a year into cpp and your employer does the same so in total you
have seven thousand dollars of cpp contributions that you can eventually withdraw from when you
retire but if you are running a business you are self-employed that means that you are your own
employer and so you're responsible for both your portion and your employer's portion of the cpp
and so you have to pay double the amount of cpp every single year if you work a full-time
job you have to pay this tax of 5.7 percent up to thirty five hundred dollars but if you're running
a business you pay eleven point four percent up to seven thousand dollars a year in cpp contributions
that can definitely hurt once again you can soften this blow by keeping your regular job
and building your business on the side as a person you have to pay your part of the cpp up to 3 500
you can't avoid that but your business doesn't have to pay the cpp let your employer do that
instead your employer from your regular job is matching your cpp contributions
every paycheck but if your side business is a sole proprietorship you're not paying yourself
a salary so you don't get paychecks that means that the cpp portion that your business
should owe is only due at the end of the year during tax season but remember your employer has
already been paying into cpp throughout the year and if they already paid out the maximum of 3 500
then you're done your business doesn't owe any money since your employer's portion of the cpp has
already been covered and that just saved you and your business up to 3 500 a year these savings can
make a huge difference especially if your business is just starting to grow and make a profit another
unexpected downside of running a business is difficulty in securing loans if you want
to borrow money for a mortgage or a car loan the bank or the lender wants to make sure that you can
and will pay them back because of this banks love loaning money out to employees with full-time jobs
that's because the banks know that you have reliable and consistent source of income
like we covered at the beginning of the video but when you're self-employed it can be very difficult
to prove your income and the banks think of you as a much greater risk and it's not unjustified banks
know that your business income can fluctuate drastically month to month year to year even
if you have an excellent credit score getting a mortgage or even applying for an apartment rental
is much more difficult as a business owner don't underestimate this fact for example i bought a
rental property with my brother last summer and it literally took months to secure a mortgage because
i was recently self-employed if i had bought the same house a few months earlier when i was
still working a full-time job i would have had no trouble securing a prime mortgage in the eyes
of the bank i would have been a perfect applicant excellent credit score a good secure job with many
years of working in the industry and i had paid off my student loans i would have been approved
by any bank in a matter of days but since i had quit my job and became a full-time business owner
all that job security had instantly vanished when you're self-employed banks want to see a minimum
of two years of business income along with tax returns to prove that your income is reliable
and they will usually take the average of these two years remember most businesses don't even
earn a profit for the first year or two and even if you start earning a profit this year the bank
will effectively cut your income in half because they're taking the average of this year and two
years ago which was likely around zero because of this only one of the big banks would even consider
my application and even b lenders which charge higher interest rates were hesitant to give me a
mortgage there were mortgage brokers that i spoke to that were actually fans of my youtube channel
and they still said no because i was considered too much of a risk in the end i had to fight for
months and i had to provide almost 100 documents to make my case i had to prepare monthly bank
statements investment reports invoices sales reports even youtube analytics showing the
projected growth of my channel i had to jump through so many hoops but if i had kept working
on my full-time job for a few more months while building this business on the side it would have
been no problem i would just show them my salary check my credit score and my mortgage would have
been approved easily one of the most intimidating downsides of starting a business is the risk when
you start a business you'll have to pour thousands of hours of effort blood sweat and tears into your
business plus you'll have to put your own money and your reputation on the line and there is no
guarantee that you will even succeed and even if you have the drive and the passion in you
you have to manage your expectations you will not be making money right away in fact most businesses
don't even make a profit in the first two years and this isn't fun to talk about but you have to
face reality and consider what happens when things go wrong everyone makes mistakes you
can't avoid that if you're working a full-time job and you screw up the worst case scenario is you
get fired it sucks you lose your job you lose your income but you can get back on your feet and find
another job in a matter of weeks but when you run a business and you screw up it doesn't end with
just you losing your job all of your employees who count on you could lose their jobs you can get
sued your reputation can get smeared and if you lose the lawsuits your business can go bankrupt
and you could potentially lose all of your personal assets your house your investments
your car all of your personal assets could be in jeopardy even if they had nothing to do with your
business but that's one of the risks of being an entrepreneur you put it all on the line and this
definitely is not for everyone you have to do some self-reflection and evaluate how you handle stress
pressure and uncertainty can you put yourself and your family through this if things go wrong
starting a business is much easier for someone like me i'm young and i don't have kids or a
family depending on me so i'm comfortable taking those risks but everyone's situation is different
so please don't take this lightly if you decide to start a business there are ways to mitigate the
risk of legal issues and lawsuits but they do cost money obviously having a lawyer that you trust is
important but they don't come for free and you can purchase liability insurance to protect yourself
from future lawsuits but this can cost a lot of money finally you can also incorporate your
business to protect your personal assets from the business i've already talked about the benefits of
incorporating your business in past videos and i'll be making a whole video on corporations so
stay tuned for that so there you have it guys those are some of the downsides to starting a
business in canada i don't want to discourage you i still believe that building a business
on the side is one of the most rewarding and profitable investments you will ever make but
it's not a decision to take lightly make sure you consider all of these factors and take a
good hard look at your life your goals and your responsibilities to decide if starting a business
is right for you thanks for watching guys and be sure to like comment and subscribe if you found
this video helpful every thumbs up and comment really does help me build this channel on youtube
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thanks everyone and i'll see you guys on the next episode of the canadian in a t-shirt bye guys