Why your business is failing

I used to be self-employed. I am more and more thinking about taking another leap in that direction, but I am not ready yet, particularly financially.

With a few years under my belt and way more business experience and education, I can see why my business failed. The reasons  I am about to talk about are very common among failed businesses:

  • Lack of business skills: you are awesome at what you do/your trade. If , for example, you are a Lawyer, you know everything about your area of Law and the justice system. Chances are, however, that you know very little or nothing in Accounting, Marketing or Human Resources. It creates a lot of problems with managing time, money, resources and generating sales. This is exactly what happened to me. Looking back, I see how I really lacked basic business skills.
  • Doing it all alone: this is also very common, particularly upon starting. Money is tight -or non-existent- and you are trying to save as much as you can. It is understandable, but it is actually counterproductive. You end-up spending a lot of time on non-billable tasks, make more mistakes if you don’t have sufficient business skills and overall lack perspective. You can’t see the problems or the obvious. This is also a mistake I made.
  • No leadership: If you have been an employee for years, the transition to be a leader and a manager can be challenging. Without leadership, your business has no clear vision or direction. If you have employees, they won’t take you seriously and you may face a high and costly turn-over.

Beyond business skills and leadership, being self-employed also requires confidence, ambition, persistence, passion and instincts.

Not everyone is made for self-employment…and it is OK.

Corporation vs. sole-proprietorship

When you become self-employed, you need to decide which structure you are going to use for your business. The 2 most common types in Canada are sole proprietorship and corporation.

Let’s look at the pros and cons of both.

Sole proprietorship:

  • Quick and cheap: creating a sole proprietorship is very easy. You only need to file in a couple of forms, pay a modest fee and you are in business
  • Little regulations and requirements: a sole proprietorship is not a distinct legal entity and has way less regulations than a corporation
  • If the business looses money, the loss can be offset against other incomes of the proprietor, lowering taxes owed
  • Unlimited liability: the owner of the business is responsible for all the debts of the business and is personally liable
  • Higher tax rates: income from the business is on the individual tax return and taxed at the personal rates, higher than corporation rates. CPP contributions are also double, as CRA considers a sole proprietor both the employer and the employee


  • More paperwork and more expensive: incorporating requires way more paperwork than a sole-proprietorship. You need to create articles and a share structure, nominate officers and directors etc…The fees are also higher.
  • More regulations and requirements: because a corporation is a distinct, separate legal entity it needs more record keeping. There are ongoing fees as well.
  • Limited liability: the personal assets of the owner are protected.
  • Lower tax rates: small businesses are less taxed than individuals. Corporations can also take advantage of business tax credits.
  • Dividend payment: instead of paying themselves a salary, owners can pay themselves dividends. Dividends are not considered “regular income” by CRA. They are taxed at a lower rate and exempt from CPP and EI. Dividends are not included in the calculation of the RRSP contribution limit.

A sole proprietorship is fine if the income generated by the business is very low or a side to a full-time job.  Personally, if I chose to become self-employed again, I would incorporate my business. The tax advantages largely outweigh the paperwork requirements.


Thoughts on becoming self-employed

I am sure a lot of you are thinking about becoming your own boss, doing what you love and working your own hours. However, in order for success to happen, there are also lots of things you will need to do, and a few pitfalls to avoid.

Becoming self-employed is very easy in Canada. I remember that, back in 2008, when I tried my hand at being my own boss, it took me less than an hour to create and register my company. But this is the only easy part.

Being and staying self-employed is actually pretty difficult and stressful, particularly at the beginning. 50% of small businesses will fail within 5 years.

Here are a few points to consider before taking the leap:

  • Money. Unfortunately, a lot of people become self-employed on a whim and don’t factor in how much money their business, but most importantly, they, will need. Your bills will not disappear when you open your business, but your regular paycheque & benefits will! Depending on what you do, you may need equipment or to rent office space. How are you going to pay for these? Banks are very reluctant to lend money to a starting business.  You will probably need a good stash of cash to see you and your venture through.


  • Planning. If you fail to plan, you plan to fail. Write a business plan: what are your products/services? Who are you clients? Who is your competition? How much revenue does you your business need to break even? To turn a profit? You will need a plan B as well if things don’t pan out. Plan for your personal life and finances too. You may have to work irregular hours. For example, if you have children, what kind of arrangements will you need? If you work from home, where is the line between work & home?


  • Timing. Don’t just drop everything to start your company. Don’t quit your job hastily, or worse, in an unprofessional manner. Rather, do so after you have done your research and figured out your finances. Better, wait until you have a few clients. It is also possible you may have to keep a part-time job until your business can sustain itself and fully pay for your bills.


  • The current economy. Don’t underestimate that one. It is a long recovery from the 2008-2009 meltdown. Although things have improved, it is still not what it used to be. It is a possibility your products/services may not be in demand right now.


All these 4 points are inter-related. We have all heard of someone who just quit their job and whose company became an instant success. They are the exceptions, not the norm. My first experience at self-employment was exhilarating but short-lived, due to shortfalls on all the above.

My biggest pitfall was the money. I simply didn’t have enough to weather the inevitable business dry spells and then the economic meltdown. I didn’t have a plan B. I also turned down a part-time job offer when I should have accepted it.

I actually know self-employment suits me. I don’t discard doing it again in the future. However, I learned from my mistakes. At the moment, I still have too much debt and not enough savings to take another leap.