Small Business FAQ

Choosing a Business Name FAQ

How do I choose a name for my business?

You have already spent days thinking about a business name that represents your products or services.  You want a name that is unique and marketable.  To help the creative process along, you might surf the Web, browse the dictionary, read trade magazines or bounce ideas off friends and colleagues. As you consider possible names for your business, please keep three issues in mind:

• Will you be seeking trademark protection for your business name?

• Is your proposed business name available?

• If you plan on having a website, is a domain name available?

You must also comply with certain provincial or state laws in naming your business.  For more information on naming sole proprietorships, partnerships and corporations, please read the free legal tutorial entitled Small Business Legal Structure found in the Lean Law Library

What is the best type of name for my business?

The best business name depends on a number of factors, including the type of business you do and your own taste and style.  The following are guidelines for a good business name:

• it should be distinctive and easy to remember

• it should be be easily spelled and pronounced

• it should suggest the products or services you offer, and

• it should distinguish you from your competitors.

How do I find out if my business name is available?

You will need to do a name search with your local companies office and possibly a preliminary trademark search to make sure no one else is using the name you want (or one very similar) to market similar products or services.  A preliminary trademark search can now be performed for free over the Internet.  Try http://strategis.ic.gc.ca/sc_mrksv/cipo/tm/tm_main-e.html for a free preliminary search and lots of information on doing a trademark search and registration.  If you find that your chosen name (or a very similar one) is registered as a trademark, don't use it.  If you fully intend to register trademarks associated with your business, you would be well advised to begin the process of a formal search for registration purposes.

Whether you are organizing your business as a sole proprietorship, partnership or corporation,  you must do a name search to make sure your business name isn't the same or confusingly similar to that of an existing business in your province or state. The companies office who performs the search will not approve a name that is confusingly similar to another business name, and you will have to choose a different name and conduct another search.

For more information on conducting local name searches and registration of business names with the companies office, please read the free legal tutorial entitled Small Business Legal Structure found in the Lean Law Library

LeanLegal is planning to include a free legal tutorial on trademark applications and registration.  However, we must admit that this will happen some time in the distant future.  If you would like to be notified when this information is available please sign up for our free e-mail newsletter LeanLegal Briefs.

What is a trademark?

A trademark is any word, phrase, design or symbol used to market a product or service. A mark used to market a service, rather than a product, is technically a service mark, although the term "trademark" is commonly used for both types of marks because they refer to the same group of legal protections. Owners of trademarks have rights under both federal and provincial or state laws that give them the power to prevent others from using the same or confusingly similar trademarks.

Depending upon the scope of your business, you may want to carefully choose a name that will be likely to receive trademark protection and then take steps to protect your business name as a trademark or at least make sure that your business name will not step on another business' rights to an existing trademark.

What is the legal name of my business?

The legal name of a business is the official name of the person or entity that owns a business. If you are the only owner of your business, then its legal name is simply your full name.

If your business is a general partnership, and you have a written partnership agreement that gives a name to the partnership, then that name is the legal name of the business. Otherwise, the legal name of a general partnership consists of the last names of the owners.

For limited partnerships and corporations, the legal name of the business is the name registered with the provincial/state filing office.

What is a fictitious business name?

The term "fictitious business name" or "assumed business name," "trade name" or "d/b/a" is used when a business uses a name that's different from its legal name.  For instance, if you have a numbered corporation and are doing business under another name, that name would be a d/b/a (doing business as) name.  If you name your sole proprietorship something other than you own full legal name, that would be a fictitious business name.

If your business uses a fictitious business name, you'll need to register it with your provincial or state companies offices.  For more information on registering your business name, please read the free legal tutorial entitled Small Business Legal Structure found in the Lean Law Library.

Do I have to register my business name?

If you're starting a sole proprietorship under your own full name, you are not required to register a business name.  If you are starting a sole proprietorship under a different name, you are required to register that name.  If you are starting a corporation, your official business name will be automatically registered when you file your articles of incorporation with your provincial or state filing office.  However, if you sell products or services under a different name, you must also file under that name in the province or state where your business is headquartered or possibly where your are conducting business.

For more information on registering your business name, please read the free legal tutorial entitled Small Business Legal Structure found in the Lean Law Library.

You may also want to take advantage of the extra protection that registering your name as a trademark can give you. While it's not required, registering your name as a trademark can prevent other businesses from using a name that could be confused with your business name.

Evaluating Your Business Idea FAQ

What type of business should I start?

To maximize your chances of success in starting a new business, take the following issues under consideration:

• Choose something you enjoy.  It is much easier and a great deal more fun to make a success of a business that you have a passion for.  Don't start a dry cleaning business just because you heard it is a money maker when you really love gardening.
  

• Choose a business you know intimately.  Try to open a business in which you have a great deal of experience.  Learning a new industry or skill while trying to get your business up and running will add a lot of unnecessary stress to your new venture and lower your chances of success.  If you want to learn a new business, you should try to learn about it or acquire any new skills before you open your own business.
  

• Choose a business that has a good chance of turning a profit.  The best way to determine your business' potential profitability is to prepare a "break-even analysis," a financial projection that will estimate how easy or difficult it will be to turn a profit.

LeanLegal in in the process of developing a small business tutorial which will provide step-by-step instructions for writing a business plan (including instructions for financial projections).  If you would like to be notified when this information is available please sign up for our free e-mail newsletter LeanLegal Briefs.  For a quick overview of a break-even analysis see the section below entitled 'How do I prepare a break-even analysis?'

What are the benefits of starting my own business?

Some of the key benefits of owning your own business are:

• Independence and Flexibility.  In the beginning, this may actually translate into working 24-7.  Once your business is firmly established, you will have the flexibility to set your own schedule and make sure you don't miss meaningful  moments and events in your life.
  

• Personal Fulfillment.  If you have an independent streak, you will probably be more satisfied and fulfilled running your own business than working for someone else.
  

• Power.  When you have your own business, there is a certain amount of power associated with having your employees do it your way.
  

• Money.  While there is a definite risk in giving up a steady paycheck to go out on your own, there is also the potential to do very well financially and to exert greater control over your financial future and that of your family.

What are the risks of starting my own business?

Common risks are:

• Losing Money.  If you are a risk taker this won't bother you as much as it does your more conservative counterpart.  You could lose savings or money loaned to you by friends or banks.  Are you willing to gamble your retirement, friendships and good credit on your business idea?
  

• Personal Sacrifice.  Small business success can come at a high personal cost. Getting your business up and running may consume most of your time and energy, including evenings and weekends. You may not have much time for family or friends or the extra cash to take vacations or holidays.  Is your family ready to make the sacrifices that may be necessary for you to succeed at your business.

How do I determine whether my business will make money?

Before you prepare a business plan, you should figure out if your business will break even.

To determine whether you will break even, you need to prepare a break-even analysis which includes a year's worth of projected income and estimated expenses and determines whether your business will make enough money to pay its expenses.

A break-even forecast includes the following:

• how much your business will earn over a specified period of time (your projected sales revenue)

• your fixed costs, such as rent, utilities and insurance

• your profit after deducting the direct cost of the product or service you provide (your gross profit), and

• the sales revenue you will need just to keep your business running (your "break-even point").

If you easily bring in more than sales revenue than you need to meet your expenses, your business stands a good chance of making money.

Break Even Analysis FAQ

How do I prepare a break-even analysis?

To perform a break-even analysis, you have to make educated guesses about your expenses and revenues. You should do thorough research and market analysis in order to determine your projected sales volume and  anticipated expenses.

LeanLegal in in the process of developing a small business tutorial which will provide step-by-step instructions for writing a business plan (including financial projections).  If you would like to be notified when this information is available please sign up for our free e-mail newsletter LeanLegal Briefs.

The following estimates and calculations are needed to prepare a break-even analysis:

• Fixed costs.  Fixed costs are overhead (rent, insurance, utilities and other set expenses). It is a good idea to add a percentage (say 10%) to allow for miscellaneous expenses.
  

• Sales revenue.  The total dollars brought in from sales activity each month or year.  You must base your sales forecast on the volume of business you really expect, not how much you need to make a profit.
  

• Average gross profit for each sale.  The money left from each sales dollar after paying the direct costs of a sale. (Direct costs are what you pay to provide your product or service.) For example, if Valerie pays an average of $100 for goods to make flower arrangements that she sells for an average of $300, her average gross profit is $200.
  

• Average gross profit percentage.  The percentage of each sales dollar that is gross profit. Divide your average gross profit figure ($200 from the example above) by the average selling price ($300) for a gross profit percentage of 66.7% ($200 divided by $300).

Calculating Your Break-Even Point

Once you have calculated the numbers above, you can easily determine your break-even point.  Divide your estimated annual fixed costs by your gross profit percentage to determine the amount of sales revenue you'll need to break even. For example, if Valerie's fixed costs are $6,000 per month, and her expected profit margin is 66.7%, her break-even point is $9,000 in sales revenue per month ($6,000 divided by .667). In other words, Valerie  must make $9,000 each month just to pay her fixed costs and her direct (product) costs. (This number does not include any profit, or even a salary for Valerie.)

If You Don't Break Even

If your break-even point is higher than your expected sales revenues, you will have to determine whether you can:

• find less expensive supplies

• save on fixed costs by working out of your home, or

• sell your product or service at a higher price.

Is further financial analysis required?

Even if you break even, you will still need a more complete financial analysis before you start investing time and money in your venture, such as:

• A profit-and-loss forecast.  A monthly projection of your business' net profit from operations.

• A cash flow projection.  A monthly projection of how much cash you will have to meet your expenses.

• A start-up cost estimate.  An estimate of all expenses you will incur before your business opens.

A break-even forecast will help you determine whether you should take the time and expense to draft a business plan, but it should never take the place of a complete profit-and-loss forecast and cash flow projection.

LeanLegal in in the process of developing a small business tutorial which will provide step-by-step instructions for writing a business plan (including financial projections).  If you would like to be notified when this information is available please sign up for our free e-mail newsletter LeanLegal Briefs.  In the mean time, you will find some common questions and answers about business plans below.

Writing a Business Plan FAQ

What is a business plan?

A business plan is a written document that describes the business you want to start and explains how that business will become profitable. A business plan usually begins with a statement outlining the purpose and goals of the business and goes on to show how the business owner will realize those goals, including a detailed marketing strategy. A complete business plan also contains formal profit-and-loss projections and cash-flow analyses designed to show that the business will make money.

LeanLegal is in the process of writing a new addition to our site which includes detailed instructions on writing a business plan.  If you would like to be notified when this information is available please sign up for our free e-mail newsletter LeanLegal Briefs.

Do I need a business plan if I'm not borrowing money?

Yes. A business plan is a map which guides you through the different stages of developing your business and should predict and alert you to possible problems or issues that need to be resolved.  Your business plan should sell you on the financial viability and soundness of your business idea.  A business plan is only as good as the research and numbers that support it. Garbage in equals garbage out.

Creating a business plan will force you to think about key issues before you start your business, e.g. how will you raise money,  what your projected start-up costs will be or what type of marketing strategy you will implement.

If you write a business plan, you can make your mistakes on paper first and come up with an improved idea before you actually start business.  Alternatively, an honest look at the financial projections may lead you to conclude that it will not be profitable and you can avoid proceeding with a business that won't work.

LeanLegal is in the process of writing a new addition to our site which includes detailed instructions on writing a business plan.  If you would like to be notified when this information is available please sign up for our free e-mail newsletter LeanLegal Briefs.

How do I write a good business plan?

The structure, content and format of your business plan will depend on your business idea and your intended audience. If you're trying to raise money from investors or borrow money from a bank, your business plan will have to present solid financial data and market research in a professional, polished package. On the other hand, if you're funding your business yourself, you can probably forego the sales pitch and create a business plan that gives you a realistic picture of your proposed business.

LeanLegal is in the process of writing a new addition to our site which includes detailed instructions on writing a business plan.  If you would like to be notified when this information is available please sign up for our free e-mail newsletter LeanLegal Briefs.