Surviving the First Year: Financial Mistakes New Canadian Business Owners Make (And How to Avoid Them)

Starting a new business is exciting—but surviving the first year can be a financial minefield for a new entrepreneur. As Virtuous Bookkeeping notes, “Among all the businesses that enter the market, only 51% last five years, while 85% survive their first year.” 

Many small businesses stumble during this critical period, often due to avoidable mistakes. Here are some of the most common financial pitfalls and how you can steer clear of them.

1. Underestimating Tax Obligations

It’s easy to overlook taxes when you’re focused on getting your business off the ground. But failing to plan for GST/HST, payroll taxes, or income taxes can lead to unpleasant surprises and even penalties from the Canada Revenue Agency (CRA).

Tip: Set aside a percentage of your revenue for taxes in a separate account. Better yet, work with an accountant like Shaw & Associates early to estimate and plan for your tax obligations.

2. Mixing Personal and Business Finances

Many new business owners use the same bank account and credit card for personal and business expenses. This makes it harder to track your cash flow, increases your audit risk, and can lead to missed deductions.

Tip: Open a dedicated business bank account and use a separate credit card for all business transactions from Day One.

3. Poor Cash Flow Management

Even profitable businesses can fail if they run out of cash. New owners often underestimate expenses or overestimate how quickly clients will pay invoices.

Tip: Create a realistic cash flow forecast and monitor it regularly. Invoice promptly and watch for slow-paying clients; consider setting clear payment terms or offering incentives for early payments.

4. Not Keeping Proper Records

Good record-keeping isn’t just for tax season—it’s essential for understanding your business’s financial health. Disorganized records can also mean missed opportunities for tax deductions and credits.

Tip: Use cloud-based accounting software or hire a bookkeeper to stay organized throughout the year.

5. Going It Alone

Many new entrepreneurs try to save money by doing everything themselves, including the accounting. But DIY bookkeeping often leads to errors that cost more to fix later. You’re an expert in your field, but chances are good you’re not a professional accountant.

Tip: Consider hiring an accountant or financial advisor like Shaw & Associates who understands small businesses. Their expertise can help you set your business on the path to success and avoid costly mistakes.

Your first year in business sets the tone for the years to come. By avoiding these common mistakes and seeking professional guidance, you can build a strong financial foundation for your growing company. For more information, this video is an interesting overview of how to avoid these pitfalls. 

Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.