At some point in your small business career, the odds are great that either you will be suing someone or someone will be suing you. Litigation normally has a mystique to many people, and the process can be very frustrating and intimidating to the layperson. This article will discuss the various levels of court that you might be involved in, the actual litigation process in the major stages, and a hypothetical same of the legal fees and expenses that might be incurred. The overall benefit of this article should be to raise your level of awareness and insight into the litigation process. It is helpful to keep in mind that 95 percent of all litigation is settled before trial, either by a negotiated settlement, or because one side or the other discontinues the action.

This article contains general and generic comments. You need to obtain independent legal advice in your own province to get customized accurate feedback.

THE VARIOUS LEVELS OF COURTS
Law is based on provincial and federal statutes as well as the common law. Common law means previous court decisions primarily from Canada or England. In Quebec the law is governed by the Civil Code, as well as other provincial legislation. There are some differences between the systems but they are similar in their effect. This article will concentrate on discussing the typical legal trial process in Canada. The names of the courts or various levels of courts, the pre-trial steps, or the terminology in one province might vary from another province, but the concepts and procedures are similar.

In many provinces there are four levels of courts, which are governed by provincial legislation. (In some provinces there are three levels.) These are: Small Claims Court, County Court, Supreme Court, and Court of Appeal. The federal government has various levels of court, primarily the Federal Court of Canada and the Supreme Court of Canada.

Small Claims Court
Small claims court is designed for the layperson and small business owner to present a claim without the necessity of hiring a lawyer. The monetary limit in small claims court depends on the province. In B.C. for example, it is $25,000. A guidebook is generally available from the court which explains the step-by-step procedures to follow when making a claim. If you are suing someone in small claims court, you may find it helpful to attend the court as an observer to familiarize yourself with the process.

The other benefit to Small Claims Court, is that in many jurisdictions there are two pre-trial steps available at a nominal cost or no cost in order to resolve the situation, eg mediation, and if need be, a settlement hearing.

County Court

County court normally has a monetary ceiling of $25,000, although this can vary between provinces. The conduct of action in this court is formal, technical, and requires representation by a lawyer.

Supreme Court

Supreme Court has unlimited monetary jurisdiction; it can hear any claim of any amount and of any nature. Again, the nature of the legal process at this level of court is formal and technical, and a lawyer is required.

Court of Appeal

If you believe the decision at the Supreme Court was legally flawed or handled unfairly, you can appeal the decision to the Court of Appeal. A rough estimation is that approximately 30 percent of judgments appealed to the Court of Appeal are overturned.

Federal Court

The Federal Court hears matters relating to federal government legislation. An example, under the Income Tax, is your company being sued for arrears of taxes.

Supreme Court of Canada

This is Canada’s court of last resort. It hears appeals from courts of appeal of the provinces. Appeals are heard from French and English speaking provinces, whether governed by the common law or by the civil code. The Supreme Court of Canada is selective over the cases it can handle, simply because of the workload involved. One criterion in the request for appeal is that the legal issues have a national implication or impact.

THE LITIGATION PROCESS

Although you may have very good grounds for suing someone, it may be far more pragmatic and expedient for you to resolve the dispute at the outset through personal negotiations with the individuals involved. In many cases it may be far more financially beneficial to you to settle the matter out of court. You and/or your lawyer may wish to hold a “without prejudice” meeting with the other party in the dispute. The term without prejudice means that any information discussed or revealed in the meeting would not be permissible evidence in court. Therefore, both parties may participate in full and open discussions in an attempt to reach an amicable settlement. You may decide to have your accountant attend as well if there are various financial considerations involved.

After assessing the situation, you may come to the conclusion that it is not worth suing someone, because the other party has little or no money. For example, you could be suing an individual who has no assets, equity, or net worth. You may be suing a corporation with liability limited to the assets of the corporation. However, by the time the trial date arrives, the assets of the corporation may have been pledged as security to other creditors or to raise money to pay the lawyer to defend the lawsuit. Or you may decide not to sue when the amount in dispute is disproportionate to the costs and legal fees that would be incurred in the legal proceedings. Litigation can be extremely expensive, as will be discussed later in this article. In addition, it is very time-consuming, full of potential risk of losing the case of losing money, and stressful. It can also involve expending a lot of negative emotion and energy over a sustained period of time, eg years.

If you are involved in litigation, whether you are suing or being sued, the following explanation of the major steps involved will be helpful in understanding the process. Small claims court involves a simplified version of these steps, or eliminates them, to expedite the process.

Writ of Summons and Statement of Claim

The writ is the document that initiates the formal legal process. The statement of claim is the document in which the plaintiff (the person suing) sets out all the particulars of the claim. It sets out the facts, allegations, and the nature and amount of claim.

The writ of summons is usually attached to the statement of claim and is filed in the appropriate level of court. After the claim is filed at the court office, copies are delivered to the defendants (the individuals or companies being sued). The process of serving the defendants with the documents may take several weeks, and is usually done by a private process server, or a provincial sheriff.

Appearance

An appearance is a short document filed in the court office by the defendant’s lawyer. It simply acknowledges receipt of the writ and statement of claim, states that a defence will be filed, and is signed by the defendant, or a lawyer on behalf of the defendant. It is normally filed within fourteen days of service of the writ and statement of claim. A copy of the appearance is served on the plaintiff’s lawyer.

If no appearance is entered within the limited time, the plaintiff’s lawyer can initiate steps to have a judgment entered in default of appearance. A judgment is an order by the court to the defendant to pay the plaintiff the amount of the claim. If this happens the default judgment can be removed, but an application to the court has to be made and reasons given to failure to file the appearance on time.

Statement of Defence

The statement of defence is a document in which the defendant states the intention to defend the action, and replies to statements made in the claim. This is done by explaining the key issues, circumstances, and factual and legal defences. The statement of defence generally must be filed within twenty-one days of receipt of the statement of claim. If the statement of defence is not filed within the time required, a judgment in the default of defence could be entered by the plaintiff. Again, this default judgment can usually be set aside by the court if an application is made to the court, and an affidavit is filed swearing that the defences that you have in the case have merit.

Summary Judgment Application

After reviewing the defendant’s statement of defence, a plaintiff may decide to make a summary judgment application to the courts. A judge will award a summary judgment when the facts and evidence clearly show that there are no merits to the defence. If the summary judgment application is successful, it terminates the legal proceedings, and the plaintiff is awarded a judgment against the defendant.

Counterclaim

Sometimes a defendant, in preparing a defence, may counterclaim against the plaintiff for monies allegedly owed by the plaintiff, or other reasons for set-off. A counterclaim is, in fact, a separate lawsuit against the plaintiff based on the same overall facts. For instance, if you have refused to make final payments on a piece of equipment that was delivered late and the supplier files a lawsuit against you, you may enter a counterclaim on the supplier for damages due to the late delivery. Damages may include cancelled customer orders, missed promotion opportunities, cost of wasted advertising. Your counterclaim may total the amount of the plaintiff’s claim, and therefore on will offset the other. It could also exceed the plaintiff’s claim.

Defence to Counterclaim

Where a counterclaim has been filed, the plaintiff has to prepare the file a defence to the allegations raised in the counterclaim.

Third Party Claim

In some situations, a third party may be involved in the dispute, and may be brought into the action by the defendant. This may be done by the defendants’ lawyer filing and serving on the third party a document entitled third party notice. The third party then has to prepare and file a defence and serve it on the plaintiff and the defendant.

Discovery of Documents
Discovery of documents means that one party gives to the other party in the litigation, through their lawyers, a list of the documents to be used as evidence. This is a list of relevant papers and other material including letters, plans, diagrams, manuals, contracts, agreements, receipts, and any other matters relating to the case. Only certain documents are accessible. You can’t do a “fishing expedition”.

If a lawyer wishes to obtain a copy of items on the list, they can be supplied by the other lawyer or made available for photocopying. It is important for both sides to review these documents in order to prepare for the next stage, called the examination for discovery.

Depending on the nature of the case, some documents could be protected by “privilege”, eg correspondence with lawyers, or dealing with government agencies.

Examination for Discovery

An examination for discovery is an interview of the parties involved by their lawyers for the purpose of collecting the facts and evidence relevant to the case. A separate examination for discovery is held for each defendant and plaintiff. Each part is questioned by the lawyer of the other party, while under advisement of his or her own lawyer.

The examinations take place under oath and are reported verbatim, that is, word for word, by a court reporter, or taped and transcribed. A copy of the transcript can be requested and later entered into court as evidence. The purpose of the examinations is to allow each party the opportunity to become familiar with the opposing sides’ case. In addition, they serve the purpose of providing a better basis upon which to negotiate an out-of-court settlement. Examinations for discovery are an essential part of the pre-trial process. Although the “pleadings”, that is the documents that constitute the initial stages of litigation including the statement of claim, defence, counterclaim, defence to counterclaim – allege various facts, they are not made under oath. The facts alleged could have substantial merit, very little merit, or no merit. The examination for discovery, conducted under oath, assists in clarifying how much merit may be involved in the pleadings.

Once the discoveries have been completed, both parties are in a position to assess the strengths or weaknesses of their respective cases. Approximately 70-85% percent of settlement negotiations that result in a compromise resolution before trial occur after the examinations for discovery.

Discovery by Interrogatories

There are occasions when a one-on-one examination for discovery is not practical, for example, if some of the parties live in remote areas or in another country. It saves costs in such situations to have the discoveries done by written examination. Interrogatories are a list of typed questions posed by one party in the litigation to the other. Similar to the examination for discovery, they are usually done well before the trial and after the defence and other similar documents have been filed and served. The party who receives the questions has to answer them in writing. These care called answers to interrogatories, and are usually in the form of a typed reply, sworn under oath.

As in examinations for discovery, the interrogatories are designed to discover more of the facts and issues of the case. Interrogatories are often helpful where there are no material documents to be disclosed. The answers to interrogatories can be used as evidence or for cross-examination at trial.

Trial Date Set

The trial date is set by the lawyer for the plaintiff based on an agreement between the lawyers as to the duration of the trial. If there is a disagreement between them, a trial date will be set based on the lawyer who suggests the longest duration of trial. Generally speaking, the longer the length of trial, the longer the wait before a trial date. The waiting time for trial could be anywhere from six months to three years or longer.

Pretrial Conference

At any time after a trial date has been set, one or the other party can request of the court that a pretrial conference be held. The conference is attended by a judge and the lawyers for the parties, and considers such matters as the clarification of the legal issues and any other matters that might help in disposing of the action or settling the dispute.

Trial

The trial is held before a judge alone unless the legislation in your province allows for a jury to be requested by one of the parties.

Each party presents its case, the plaintiff first, then the defendants all together or each in turn. Witnesses may be called or subpoenaed as well as to give evidence on facts. Witnesses of the plaintiff give testimony to the plaintiff’s lawyer, and are then cross-examined by the defence; and vice versa for witnesses of the defence. Expert witnesses may be called to venture professional opinions about some aspects of the evidence. If a claim is being made for damages (financial losses), a professional accountant may be called to give expert testimony in the calculation of figures. Keep in mind that if you claim damages, you have to prove that you have acted reasonably and in good faith, to mitigate ongoing damages from the time it became apparent that there was a problem, eg breach of contract. It all depends on the facts of the situation. For example, say you are a landlord, and your tenant broke the lease and left, and you sued for your losses due to breach of the lease. As a landlord, you have to show that you immediately tried to re-lease the property, and the steps you took to do so. The tenant could argue that you were negligent in not trying hard enough. You get the idea. The litigation process is inherently adversarial.

In the final stage of the trial, the lawyers present legal arguments in an attempt to persuade the judge and/or jury that the evidence and applicable laws call for a verdict in favour of their client. It is in these arguments that past cases which have a bearing on the present case are often brought forward. This is called referring to the common law or court case law. These cases generally come from other court case in Canada, the United States, or England.

Judgment

The judge or jury has the responsibility to determine the extent that each party contributed to the overall problem and the amount to be paid. One or more of the defendants in whole or in part may be held responsible. Or, the plaintiff may have partly contributed to the problem. If the defendants have put in a counterclaim and the counterclaim is upheld by the courts, then a set-off will occur against any claim in favour of the plaintiff.

The judge will present an opinion on the case and state the amount of the judgment to be awarded and court costs, if any. The losing side is usually obliged to pay court costs to the other side, based on a specified tariff schedule. If the court awards party-party costs, this is a lower tariff schedule than solicitor-client costs. The court has the discretion to grant the higher level of costs if it is felt that the circumstances justify it. The highest level of court costs generally only represents between 15 percent and 35 percent of the actual amount of the winner’s legal costs. Actual legal costs obviously vary, depending on the fee arrangement, the experience and efficiency of the lawyer, and the complexity of the case.

Appeal

After the judgment is rendered, one or more of the parties may decide to appeal either the finding of liability, or lack thereof, and/or the amount of the damages awarded or other judgment. A notice of appeal must be filed within a limited time after judgment. Appeals are heard before a panel of senior judges, and are concerned primarily with errors in the interpretation and application of law, as opposed to the interpretation of the facts and evidence. There is not a “re-trial”. Like the trial process, the appeal process can be lengthy, expensive, unpredictable, and stressful.

Examination in Aid of Execution

Once a judgment has been obtained, the party who has been awarded the judgment is entitled to examine under oath the person or company on which the judgment was obtained. The purpose of this examination, which normally occurs in front of a court reporter, is to determine all the assets of the judgment debtor. Once all the assets are determined, then procedures can be commenced to collect the amount of the judgment.

Execution of Judgment

Once you are aware of the debtor’s assets, there are various forms of execution of a judgment. Some of these include garnisheeing bank accounts and accounts receivable, seizing assets such as cars, boats and equipment, and commencing action on any real estate owned by the debtor. In many cases, the assets may be already pledged as security to other creditors, and very little equity, if any, may be remaining in them.

Settlement

It is frequently advisable that the parties attempt to reach a compromise rather than proceeding to trial. As mentioned earlier, civil litigation is very expensive, uncertain, and stressful. Negotiations can be conducted at all stages of the litigation process commencing from the service of the writ and the statement of claim. After the examination for discovery, negotiations usually occur in earnest as the bargaining positions become clear.

The courts encourage out-of-court settlements by providing a procedure whereby a party may make a formal offer to settle. If this is done within a limited time prior to the trial and the outcome of the trial is at least as favourable to the offeror as the terms of the offer, the party who failed to accept the offer is penalized by the court by having to pay a high percentage of the offeror’s legal expenses. The offer is open for acceptance until it is either formally withdrawn or the judgment is rendered.

LEGAL FEES, EXPENSES, AND COURT COSTS

If you are suing more than one defendant, you can multiply the legal costs, as there is limited economy of scale in time, as the facts could vary and there are parallel steps. The legal process can become very complex. The example below is based on just suing one defendant.

To illustrate the potential high costs involved in litigation, an example will be given. Say you wanted to sue a debtor for $50,000 and retained a lawyer to represent you on an hourly bill-out rate of $300. There is GST on this service fee, plus PST or HST depending on the province. In B.C., for example, there is GST and PST charged on the legal fee. The more experienced a lawyer, the highly the hourly rate. It could go up to $500 an hour or more, for senior lawyers. It is generally rare for a lawyer to act on a contingency-fee basis for collection of debts, because of the risk that he/she may lose and therefore not be paid – but it all depends on the circumstances of the case. The other reason is that the lawyer may not know all the facts at the outset, as the client was selective with information, or did not fully disclose it. The contingency fee arrangement is normally in a personal injury case, where there is no issue that the injury actually occurred. The issue is the responsibility of those who allegedly caused it the injury, and how much the injury is “worth”.

In the above scenario of claim for debt, the defendant files a defence and a counterclaim against you for $50,000, claiming a set-off for sloppy workmanship, incomplete workmanship, and delays. You believe the defendant is bluffing, and has no merits to the defence or counterclaim, so you proceed down the litigation road.

The pretrial procedures go on for a year and then there is a further one-or two-year wait before trial. At the trial you win on your claim, and the other side loses on the counterclaim. You are awarded court costs. The trial lasts a week, and there are many witnesses, and large quantities of documents. The legal issues are complex.

Click here to download the example

After looking at the preceding example, you might have considerable anxiety when contemplating suing or being sued. In the example given, even though the case was decided in the plaintiff’s favour, the plaintiff was still out of pocket. As well, for a two-year period the plaintiff had to deal with the risk, uncertainty, anxiety, frustration, and negative energy of the litigation process. There are a number of questions that you should consider when looking at this example:

• Was the litigation exercise worth the aggravation and risk?
• What if the defendant succeeded in the counterclaim?
• What if the court did not award costs to either party in the event that both parties won on their respective claims, or partially won on their claims?
• What if the defendant was a corporation, and by the time the trial ended, it had no assets, and you had no personal guarantees from the principals (eg director) of the company), eg you could not collect on your judgment?
• What if the lawsuit was against an individual, and they were “judgment proof”, eg no assets in their name?
• What if the defendant’s assets were pledged as security to creditors, or to the bank for a loan to pay the legal fees?
• What if the defendant corporation stopped doing business or went into bankruptcy just prior to or after the trial?
• What if just prior to trial your lawyer required another retainer to proceed any further, and you did not have sufficient cash flow or financial resources to pay the fee, and therefore had no choice but to discontinue the case?
• What if the defendant’s counterclaim against you showed up in a Dun & Bradstreet or Credit Bureau record, and because of it creditors as well as your bank would not advance further funds or credit to you?
• What if the nonpayment of the $50,000 debt plus the extensive legal fees caused your business to go under because you could not in the end collect on the debt? If you had signed personal guarantees for your corporate liabilities, you may have additional legal problems.

This litigation example demonstrates the potential perils of getting involved in a legal fight. Until or unless you receive a judgment at trial, you would not be entitled to examine the debtor under oath as to the assets of the debtor. Therefore you would have no idea if the company was pledging its assets, selling off its assets, or ready to go under prior to trial or shortly thereafter and before you can collect.

Some lawyers are more efficient and more expert than others in litigation matters. If you are involved in litigation, it is very important to make sure that the lawyer whom you have representing your interests is a skilled litigator. It is also advisable to ensure that your lawyer is a skilled negotiator and attempts at various appropriate stages in the litigation process to resolve the matter by out-of-court settlement, if at all possible.

You have to make a tough business and financial decision before commencing litigation, based on legal advice from at least 3 experienced litigators. You want to make sure the advice is consistent, and you have a sober reality check as to the potential range of costs, and risks.

LEGAL STRATEGIES AND TACTICS

When you are dealing with litigation matters, there are many tactical and strategic considerations that influence the outcome. It is common for settlements to be made not on what is fair, in the opinion of one or both parties, but what is economically and pragmatically expedient in practical terms. It is helpful to understand these realities before getting involved in litigation.

The civil litigation process is adversarial in nature. That means that each side will exert their best efforts to convince the court on the merits of their respective positions, by accentuating the positive and rationalizing the negative as irrelevant or insignificant. At the same time, the goal is to try to diminish the merits of the other side’s case. In other words, strongly argued positions at both ends of the spectrum frequently occur. The reality might be somewhere in the middle, or maybe weighted on one side or the other.

There are various factors or strategic approaches that could influence the outcome of the case or settlement. They have very little to do with the facts or dispute at issue. They have a lot to do with tactics and strategies. It is assumed of course, that all the approaches used fall within the guidelines of proper professional conduct. Keep in mind, though that because it is an adversarial process, there is a wide range of approaches that can be used that are completely in keeping with that adversarial process. Some lawyers by nature or by client instructions are prone to try to find a point of settlement when the timing is right. Other lawyers by nature or by their client’s instructions want to proceed regardless of the cost, without any desire or attempt to compromise or settle. Those who adopt this latter approach tend to do so out of emotion, principle, or just a bad attitude. Seldom is the outcome satisfactory on any level – financial or emotional.

It is always best to try to find a pragmatic solution, and move on, even though you do not feel fully satisfied with the outcome. Consider it a learning experience, and take legal and risk management steps to pre-empt a repeat in the future.

A separate article will soon follow detailing approximately 25 litigation legal strategies and tactics. These will give you “talking points” to discuss with your lawyer, and to help you better understand the process.

What kind of person becomes an entrepreneur? What characteristics must a successful entrepreneur have? Whether people are born with some of these traits or learn them is a topic for a good debate, but what we do know from numerous studies is that successful entrepreneurs tend to have several important personality characteristics in common.

Entrepreneurs are often strong individualists, optimistic and resourceful, and they usually have a high degree of problem-solving ability. They also tend to be persistent, self-confident, self-reliant, versatile, resourceful and have a strong desire to achieve. Additional traits include being objective, realistic, open to change, and looking for and creating opportunities.

Here are some other common traits of an entrepreneur:

Strong goal orientation.
Ability to set clear goals that are challenging but attainable; ability to continually re-evaluate and adjust goals to make sure they are consistent with one’s interests, talents, and values as well as personal or business needs. Rather than being content with reaching goals, successful entrepreneurs continue setting new goals to challenge themselves.

Ability to withstand business reversals without quitting
Though perhaps disappointed, not discouraged by failure; ability to use failures as learning experiences, so that similar problems can be avoided in the future; attitude that setbacks are only temporary barriers to goals; strong capacity to build on successes.

Willingness to accept calculated risks
Ability to identify risks and weigh their relative dangers; preference for taking calculated risks to achieve goals that are high but realistic. This is contrary to the stereotype that entrepreneurs are gamblers or high-risk-takers, the risks involved are often moderate due to the amount of planning behind them.

Strong desire for independence
Genuine desire to be one’s own boss, free from external direction and control; sincere willingness and proven ability to be self-disciplined in sometimes isolated working conditions; ability to organize activities to reach personal goals. Successful entrepreneurs are not usually joiners by nature. They often join only to network: to make business contacts, further their ventures, or obtain useful information to solve problems.

Ability to handle uncertainty well
An entrepreneur must have an ability to live with the uncertainty of job security. He or she must face many crises, take risks, and allow for temporary failures without panic. Successful entrepreneurs accept uncertainty as an integral part of being in business.

Ability to apply ideas in creative ways
Strong desire to originate an idea or product, to develop something new, to be innovative, to make something happen, to imprint personality, dreams, and ideas on a concept in a unique and different way; powers of both observation and imagination to foresee possible market ideas.

Sense of purpose
A feeling of mission must motivate the person to go into business; the activity must have meaning. The mission may be to make an attractive profit, to sell some necessary and unique product or service, or to develop ideas or skills without the constraints of others’ expectations.

Did you know that you can make more money simply by asking for a better deal? Most people don’t realize that there is room for improving the financial arrangement or transaction, and therefore don’t ask. Or sometimes, people just don’t know how to negotiate or feel intimidated by the process.

The easiest way to make or save money is to negotiate the best bargain. This means knowing how the system operates and knowing how to ask. Quite simply, if you don’t ask for a better deal you won’t get one. It is a shift in attitude and approach for many people, but it will definitely reap financial dividends for you. Given the natural competitive environment of business, it is normal for companies to want your business and to bend to accommodate your needs–but you still have to make requests.

There are many opportunities to practice your negotiating skills, such as when you are buying a GIC or mutual fund, for example, or borrowing money for a line or credit or for your business.

Here are some ways to enhance your financial situation by applying various negotiating tips and strategies that work. You have nothing to lose and everything to gain–including self-confidence–if you use an informed, assertive approach when dealing with your money.

Guaranteed Investment Certificates (GICs)
When you check with your financial institution, you will find that there are many options available to you. The rate you see in the newspaper or shown in your local financial institution is referred to as the “posted” rate. You may logically assume that it is the best rate they can offer you. Most people do. However, most branch managers have the discretion to give you up to l/2 per cent or more interest than the posted rate, in order to get or keep your business. All you have to do is ask for an extra l/2 per cent. If you feel uncomfortable doing so, simply blame someone else–you could tell them that your accountant recommended that you do so, for example.

Financial institutions traditionally offer a l/4 per cent point if you put new money into a GIC or RRSP and a further l/4 per cent for transferring RRSP or RRIF funds from another institution, especially around RRSP time. However, you don’t need to move funds to get those rates. You can keep your funds where they are. In addition, ask for the full l/2 per cent or more regardless of the time of year. If you have a lot of money involved, (say, $l00,000 or more), then you can try to improve your situation by asking for a full 3/4 per cent or more over the posted rate for a fixed-term investment such as a GIC. This is especially important if you already have an established relationship with that institution.

In addition, if you are moving funds from one institution to another, ask the new institution to pay for any transfer fees charged by the other institution, and waive its own setup fees if applicable.

Self-Directed RRSPs or RRIFs
If you are looking after all the investments in your RRSP or RRIF by means of a self-directed program, there are ways you can save money. Almost all types of financial institution offer the self-directed option, including banks, trust companies and credit unions. You have to place it with a trust company or an institution that is acting as a trustee. The annual management fee ranges from about $25 to $200+, depending on the institution and the nature of services that they provide. You can ask to have the fee waived or reduced. If you are being charged an extra fee for various transactions, ask to have the administration fee waived. In addition, if the financial institution is charging you for activity in your account, such as purchases, redemptions or transfers, ask to have them waived or cut in half. If there is a lot of money involved, or if you have other financial relationships with the institution, the more negotiating leverage you have for a waiver of fees. There could be different transaction fees, depending on whether it is a stock, load or no-load mutual fund. If you are transferring funds to another institution, ask the new institution to cover the transfer fee. This is a common practice, but you want to ask to make sure you get that benefit.

You may prefer to work at home and not rent office space. Or you may prefer to minimize the risk of leasing and rent an office in an executive suite business centre. However, if you decide to take the jump and rent office space and commit to a number of years, you should be aware of the variations available to you. That way you can assess the pros and cons and negotiate a lease that is suitable for your present and projected business needs.

The following types of leases are the most common ones. The name used to describe each lease may vary in your region, but the concept behind the description is the same.

Net lease
In a net lease situation, the tenant pays a flat rate which is all-inclusive of heat, light, water, taxes, common area use, ground maintenance, building repairs, etc.

Net lease plus taxes
This is similar to the net lease, except that there is an agreed-upon extra expense for taxes. Any taxes over and above the base tax rate are passed on to the tenant totally or partially, depending on what is negotiated. The extra cost for taxes would normally be passed on once a year once the tax assessment has been obtained and paid by the landlord.

Triple net lease
In this type of lease situation the base rent is a certain price (for example, $10 per square foot of area rented), but the tenant is responsible for paying his proportionate share of all the extra charges incurred by the landlord. These are normally outlined in the lease agreement. These extra costs or operating expenses could add up to the equivalent of another $6 or $7 per square foot, for example. The total monthly rental outlay would therefore be approximately $16 per square foot. The operating costs may fluctuate each year based on taxes, maintenance, insurance, administrative and management costs. When one refers to a cost per square foot for lease space, it is quoted on an annual basis; to calculate the monthly rent, you multiply the square footage of the premises by the cost per square foot, and divide by twelve.

Index lease
This type of lease is one in which the rent varies based on a formula of costs incurred by the landlord. For instance, the lease may vary every year based on the cost-of-living index to account for inflation.

Variable lease
A variable lease is one in which the annual rent is agreed upon in terms of how it is calculated, but the monthly rent may vary depending on the seasonal nature of the cash flow of the business. For example, there could be a very low or no-rent period of three or four months because business activity is slow. The rent for the remaining months of the year would be high, to compensate for the period when the business was unable to pay rent.

Graduated lease
This type of lease requires an increase in rental payment every month for a specified period of time. This is usually done to assist a business in its first year of start-up, so that the monthly payments are related to the increase in cash flow and revenue of the business. At the end of the graduated period, the rental payments by the tenant would then be at a fixed rate, usually as in a net or triple net lease.

Percentage lease
The percentage lease is commonly used in the renting of retail stores in shopping centres. The landlord therefore obtains the benefit that the tenant obtains in terms of the large traffic volume going through the shopping centre, which the landlord has established. Some of these types of leases are based on net profit and others on gross profit, with a base minimum. The landlord also requires stringent accounting and reporting controls. In effect, they have become your quasi-business partner. Such a relationship can be risky and de-motivating. It depends on the deal.

Always make sure that you have a lawyer, experienced in leases, give you objective and candid feedback on the lease terms. Leases are full of jargon that has significant legal implications. You want to understand every aspect of the terms of the proposed lease. The landlord’s lease is almost invariably one-sided in the landlord’s favour. You need to have your lawyer negotiate a more balanced lease on your behalf, if at all possible. Otherwise, take your business elsewhere.

Every type of small business requires marketing. How to budget and pay for your marketing is an important issue, of course, but more important is how effectively the money is used to accomplish your specific marketing goals.

It is important to understand what marketing is and some of the low cost ways of marketing your business while being aware of the bottom line in doing so.

Marketing involves a wide range of factors which impact on the public perception of your business. These factors will influence the desire of the potential customer to deal with you or not. It is simply not possible to succeed in business without marketing. The types of factors which could affect the perception of others when assessing your business include: your personality, business name, business location, business cards and stationery, the clothes you wear, the personnel you hire, how your phone is answered, and how quickly you respond. Other influencing factors include: the nature and form of your advertising, promotion, staff image, sales presentations and contracts, quality of sales and service, site management and customer relations, and problem solving.

Here are some low-cost effective options to consider:

Word of mouth
It is a cliché; but an accurate one: word of mouth is the best form of advertising. The more people promote your business because they know you or are satisfied customers, the more sales you are going to make. Personal testimonials are very persuasive and credible. Attempt to cultivate positive and respectful customer relations at all times. Remember, the customer is always right, even when the customer is wrong. One dissatisfied customer can taint your goodwill to many other people. You should therefore deal with any customer complaints in a prompt and efficient manner.

Brochures
Brochures and posters can be very effective and relatively inexpensive. Some of the advertising uses of a brochure are: leaving it with a prospective customer; distributing it at a seminar, presentation, trade show, or other distribution location; sending it as part of a direct mail campaign; and mailing it after a written or phone request for further information. Always obtain competitive quotes on brochure production and printing, as prices can vary considerably. If you want colour printing done, ask the printer to do it at the same time as they are doing the same colour run for others. This should save you money, if you can wait for a few days.

Classified and display ads
You may wish to consider advertising in the classified sections of newspapers, magazines, or newsletters targetted to your market. Display advertising can be expensive and is not appropriate for everyone, although it can be very effective if properly targetted. A larger ad does not always bring in a greater response. You may want to test the market by placing classified ads in selected community or daily newspapers, and tracking the response. You may then want to test a display ad in those newspapers that produced a good response.

Co-operative advertising with suppliers
Many manufacturers and suppliers will pay for a portion of your ad if you use their name or logo in some way in your ad or other marketing promotion. Do your research and talk to your suppliers and their suppliers. The savings to you could be 50% or more.

Teaching courses and seminars
Teaching adult education classes is an effective way to make business contacts, meet prospective customers, obtain public exposure, and enhance your reputation as a credible expert in your business. In addition to being paid, teaching also has the fringe benefit of keeping you current in your areas of interest. Contact the continuing or adult education program coordinators of school boards, colleges and universities in your area. If you don’t feel comfortable speaking in public and want to develop that skill, you can take courses through school board or college adult education programs and/or join a local Chapter of Toastmasters.

Website
Having your own website is expected by your customers, and can be a cost-effective marketing and client/customer acquisition program. If you are selling products, it can also be a highly profitable e-commerce tool.

Before you decide what forms of marketing to consider and the time, energy and financial resources you wish to commit, make sure you do a marketing plan in writing that you can understand and use. This should also include a marketing planning calendar and the tracking procedure to monitor how effective each form of marketing is to you.

One of the joys and realities of being in business is the prospect of needing money, either in your start-up or during growth or expansion. With a pragmatic understanding of the dynamics of the loan approval process, you can greatly enhance your prospects of success.

Once you start negotiating with the financial institution, you must sell the lender on the merits of your business financing request. However, as in all sales presentations, consider the needs and expectations of the other party – in this case, the loans officer. A loans officer will be interested in the following:

Your familiarity with the business concept and the realities of the marketplace, as reflected in your business plan.
Your ability to service and pay back the debt with sufficient surplus to cover contingencies, including interest charges, so that you eventually repay the debt in full. This would be demonstrated in your cash flow forecast and projected income statements.
Your ability to provide security to the bank for the loan.
Your level of commitment, as shown by your equity in the business or cash investment in the particular asset being purchased.
Your secondary source of repayment, including security in the event of default or other problem, and other sources of income.
Your reasons why the money is needed and how long you need it for, and how much you need.
Your track record and integrity, as shown in your personal credit history, your business plan, and business results or past business experience.
Your businesslike approach. Remember, a lender is in business for the same reason you are – to make a profit, and to minimize or eliminate bad debts. They are not venture capitalists.
Your judgement in supplying information. Be sensible with the number of documents you provide at the outset. You do not want to overwhelm the loans officer with material.
Your personal appearance. You should present yourself in a manner that projects self-confidence and success.
Your consideration in allowing sufficient lead time for approval. The lender needs a reasonable time to assess your proposal. Also, the loan may have to be reviewed at another level within the financial institution.
Your credit rating. It’s a good idea to review your credit rating periodically, as there may be errors or blemishes to correct in your file. Note your positive and negative points, so you can discuss these when raised by the lender.

If your request for financing is approved, make sure you understand and can live with the conditions before you commit to them. Depending on the amount of money involved, you may wish to ask your accountant and lawyer to assist you in the loan application in advance and to review the bank’s approval. Remember that it is a highly competitive lending market place, so consider at least three comparative quotes.

If your request for financing is not approved, find out why. Use the lender’s experience to your advantage. Lenders handle many requests for financing, and have experience in the financial aspect of many businesses, even if they do not have personal business management experience. If there is something wrong with your financial proposal, see if it can be corrected and then reapply. Otherwise, use this knowledge when approaching other potential lenders, or on future occasions when seeking funds.

Some of the reasons for a loan rejection include: being outside bank policy, business idea considered risky or unsound, insufficient collateral, perceived lack of financial commitment, poor business plan or purpose of loan not explained or unacceptable.

Now that you know the factors that lenders take into account when considering a loan application, evaluate your situation based on those criteria. Adopt a positive, self-confident and selective approach. Remember, you are doing the lender a favour by agreeing to give them your business, not the other way around.

Have you considered borrowing or obtaining money from people you know best, who are closest to you, people who believe in you, and whose most natural inclination is to want to help you be happy and successful? More than 50% of people have gone that route. This type of financing is considered as “lovemoney”.

“Lovemoney” financing, although attractive, is not without its perils. It is most important to consider all the implications for you and your family and friends before approaching them for investment monies or loans. It is a cruel fact of life that relationships are almost always damaged when money is lost. Even when the prospective investor or lender has confirmed in advance that he or she can afford to lose the money, and is willing to take the risk of doing so, when it actually happens it is quite another thing.

In a complex, frenetic and impersonal world, our family and friends are the safe refuge with whom we can seek comfort, solace and sanity. You may feel extremely confident and enthusiastic about your business potential, but go slowly and thoughtfully before bringing your family and closest friends into your business deal. How will you feel if you let them down? How will you feel if they never look at you with quite the same degree of trust and respect again? Or if permanent estrangement occurs or you cause them serious financial hardship and stress? While people can forgive, few will ever forget. Parents are generally the most forgiving of financial loss, while friends tend to be the least.

If you are still determined to access financing from family and friends, here are some recommendations to temper the outcome in a worst case scenario.

Borrowed money
Attempt to give security for the loan and always put the terms of repayment in writing and give a promissory note. It shows good faith, responsibility and concern. Security could be in the form of collateral security on assets of your business or a collateral mortgage on your home, if you have one. By securing the loan, your family or friends would be secured creditors and would be paid off from assets before any unsecured or general creditors.

Investment money
If you are asking friends or your family to invest in your business, by putting in equity capital in your enterprise and becoming shareholders then there are additional options to consider. You could structure the money received as a shareholders loan in part or in full, with flexible terms. That way the investors would be paid back their investment money tax-free from your business. Before they invest, show your investors your business plan, including risk factor and suggest they have it reviewed by their accountant, lawyer or outside consultant to receive an independent opinion. Have a shareholder’s agreement prepared. A carefully written agreement that sets out the possible upside and downside, the risks and benefits, the rights and remedies, is essential to attempting to maintain good relationships with your investors when things go bad, or at least are off target as can frequently happen. Finally, make sure you report to your investors on a candid and regular basis, to keep them fully informed. Do so at least once a month and as any problems develop. This is against the inclination of most entrepreneurs, who optimistically believe, or at least hope, that the solution to a problem is around the corner. Most investors however, can accept your failure and their financial loss if they know that you have kept them fully and honestly informed, and you have done your best to make the business work.

There are pros and cons to some of the options covered, so make sure you get good legal advice before structuring your business financing relationship.

Whether you currently have employees or not, the chances are that as your business grows, so will your need to have employees. At the outset, you will probably be playing the role of manager, in addition to the other roles you play.

Managing employees is cited as being the biggest problem to small business owners. This is because employers very often don’t know how to handle employees. Effectively managing employees is a skill acquired through training and practice. Many books have been written on the subject, and courses are regularly offered through educational institutions. If you are hiring or managing staff, you should spend some time reading and taking courses on this topic. By applying some basic principles of respect and encouragement in the development of each staff member as an important individual, you will reap the rewards of loyal, trustworthy, and dependable staff. The following sums up the course on human relations (source anonymous):

The 6 most important words: “I admit I made a mistake.”
The 5 most important words: “You did a good job.”
The 4 most important words: “What is your opinion?”
The 3 most important words: “If you please.”
The 2 most important words: “Thank you.”
The 1 most important word: “We”
The least important word: “I”

Leadership style
A leader is one who is in control, takes charge of a situation, and is decisive. A good leader or manager is fair, firm, and consistent, as well as flexible. Being flexible doesn’t mean that you have to change your personality. You can be firm and still be friendly; you can be decisive and still be polite. You can give someone more freedom without giving away the company. The better you are at knowing how to treat your employees, the more effective you will be as a manager. And the employer-employee relationship will be more satisfying to both parties.

Hierarchy of needs
Many theorists believe that people have different need levels in their work environment. They progress from one stage to the next, although some people “plateau” or stay at a certain stage for a period of time before advancing on. Briefly, the stages follow:

The basic or survival level is the starting point. In order to accept a position, a person needs to be assured that the wages offered are sufficient to meet his/her basic needs for survival (food, shelter).

A person’s security needs relate to job, financial, and health security. These are most often addressed by an employer in a benefits package. Examples include: training and development, tuition fees for night courses, seniority systems, wage incentive plans, profit-sharing plans, insurance, pensions, medical/dental plans.

Having satisfied the basic and security needs, a person then seeks to satisfy his/her social needs. Having an opportunity to learn new skills, to make suggestions on his/her area or department, to interact with other staff, to attend staff meetings and be called upon for input are examples of how social needs may be met.

Professional advisors are essential to small business success. Your team of professional advisors should include a lawyer, a tax accountant, and ideally a consultant or mentor experienced in small business ownership. They can provide knowledge and expertise in areas which you have little experience. They will round out your management so that your business is operating most efficiently, with minimal risks and good, sound information. It is important to recognize when it is necessary to call in an expert to assist you.

Because of the costs associated with hiring a lawyer or accountant, some business owners are inclined to try the do-it-yourself approach. This can be a shortsighted decision and detrimental to your business. For instance, the person who processes his or her own income tax return rather than hiring a tax accountant may miss out on small business tax exemptions that could save much more than the cost of the accountant’s time. Or a person who signs a lease or a contract without having it reviewed beforehand by a lawyer may regret it for many years to come.

You should be very selective in your screening process. The right selection will enhance your prospects for profit and growth; the wrong selection will be costly in terms of time, money and stress.

There are many factors you should consider when selecting advisors. For example, the person’s professional qualifications, experience in your specific area, and the fee for services are factors you will want to consider. It is helpful to prepare a list of such questions, plus others relating to your specific needs, and pose these to each of the prospective advisors. Some people may feel awkward discussing fees and qualifications with a lawyer, for instance, but it is important to establish these matters at the outset before you make a decision to use that person’s services.

The most common selection criteria include qualifications, experience, compatible personality, confidence and competence in the area concerned, and fees. Having a comparison of a least three advisors is the ideal approach before you select the one for your needs

Qualifications
Before you entrust an advisor with your work, you will want to know that he or she has the appropriate qualifications. These may include a lawyer’s or accountant’s professional degree, a university degree in the area of expertise, or some other professional training relative to the area of work.

Experience
It is very important to take a look at the advisor’s experience in the area where you need assistance. Such factors as the degree of expertise, the number of years’ experience as an advisor, and percentage of time spent practicing in that area is critically important. The amount of reliance you are going to place on their advice and insights is obviously related to the degree of experience they have in the area. For example, the fact that a lawyer might have been practicing law for ten years does not necessarily mean that the lawyer has a high degree of expertise in the area on which you are seeking advice. Perhaps only 10% of the practice has been spent in that specific area. It would be prudent to have a benchmark of at least 50% of the practice time in the area of law of your need. An accountant who has had 15 years of experience in small business accounting and tax advice will certainly provide you with a depth of expertise about small business in general. If that accountant also has specialized experience in your industry, this is an additional factor that could assist you. Enquire about the degree of expertise and length of experience in the specific area. If you don’t ask the question, you won’t be given the answer that may make the difference between mediocre and in depth advice.

If you own a small business, you work very hard for your money. You want to make sure that you have used every legal means possible to save on tax, to enhance your after-tax net income.

Here are some tips to help you achieve that objective. In all examples given, make sure that you speak with a qualified professional advisor with expertise in the area. This could be a professional accountant (such as a CA or CGA) and in some cases, a lawyer as well. The comments given here are general guidelines only, and it is advised that you obtain current tax regulations and strategies.

Income-splitting
This is a classic way of saving on taxes. Basically, it means that you arrange your income to have it divided amongst other family members (spouse and/or children). That way, each of the individuals will be paying less taxes, because of lower marginal tax rates. The aggregate taxes paid will therefore be less than what you would pay if all the money went into your hands. Here are some examples:

Spousal RRSP
Remember that the deadline is the end of February . You want to try to reach the maximum of your “earned income” for RRSP calculation purposes. Rather than put the RRSP in your own name, you can put up to l00 per cent of your RRSP annual contribution into the name of your spouse (assuming that your spouse has less taxable income than you do). You take the tax deduction from your taxable income. The advantage of this arrangement is that when the time comes to collapse the RRSP (take out the funds), it will be taxed in the name of your spouse, who presumably is still in a lower tax bracket and will therefore pay less tax.

Corporate shares
By splitting your shares with your spouse and children, you can reduce the amount of tax paid in aggregate because the lower the income (from dividends) the lower the marginal tax rate. This point was covered above. For example, you could have 5l per cent of the shares, while your spouse and children share the remaining 49 per cent. You can deal with the issue of control by having Class A voting shares for yourself, and Class B non-voting shares for your spouse and children. You also want to have the right to buy back the shares at any time from the other shareholders at the original, or some other set share value. There are various formulas you can consider. You also want to get professional advice if your children are minors and don’t pay fair market value for their shares–their dividend income could be attributed back to the business owner for tax purposes.

Family trusts
If you set this arrangement up carefully, and there are several options, you can keep more tax-free money in the family unit. For example, if your spouse and children are holding shares in your company through the means of a family trust, and have no other family income, they could each receive up to approximately annually in dividend income totally tax-free. Sounds rather attractive doesn’t it? Normally, it is structured so that you hold Class A shares (voting) in your own name, while the Class B (non-voting) shares are held in the name of a family trust. This can be set up through the assistance of your lawyer and accountant. If you own an incorporated company that intends to pay or currently pays dividends to a spouse or children who are not actively involved in your business, ask your professional accountant, make sure you receive skilled tax advance.