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This is the fourth & final part of our blog series on how to properly set up your small business. In this post, we’ll examine the need for municipal business licensing and business insurance in Canada. Follow the rest of the blog series below:
- 1: Business Structure – Identifying & structuring your business
- 2: Provincial Registration – Registering your business name & PST/QST accounts
- 3: Federal Registration – Obtaining a business number & registering for GST/HST
- – Municipal business permits/licences & small business insurance
This post is informative only and is based on my knowledge and experiences. Please consult with a local professional for the best information for your business. This post may contain affiliate links, which means that I may earn a commission on any sales at absolutely no extra cost to you. Review our Policies for more info.
Municipal Business Licensing in Canada
Depending on the nature of your business, where you conduct your business, and the town/city/municipality where you live in Canada, you may need to obtain a business licence or permit.
Each municipality/city in Canada sets their own rules on business licensing (and any subsequent insurance requirements). You will therefore need to check your local bylaws for those requirements and see if they apply to your business.
The city I live in does not require a business licence for my home-based business. This is likely the case for your business as well if you operate out of your home and don’t have customers/clients coming into your home to shop or receive services. However, please check with your local bylaws to confirm.
If you operate out of a commercial or retail space, you are more likely to require a business licence. It may depend whether customers come into the premises or if you only use the space for product manufacturing.
Another instance in when you might need to obtain a business licence or permit is when selling at a local event, such as a market or craft fair. In some municipalities, only the host/organizer of the event needs to obtain a licence, but in others, each vendor requires a licence for the event. If you are considering selling your products at an event, be sure to look into your city’s bylaws before committing to the event. If you must obtain a permit/licence, then you should take those costs into consideration along with the event fees and any commission the hosts may take from your sales.
Obtaining a Business Licence
If your city requires you to obtain a business licence, then you should send in your application immediately. The requirements for your application will depend on the type of business and will vary by municipality. Consult your local bylaws to find all application requirements. These may include:
- completed inspection
- floor plan
- business hours
- proof of business insurance (likely with a required coverage amount)
- proof of business name registration (we discussed this in Part 2: Provincial Registration)
- inspection & application fees
Your business licence will likely have an expiry date. You will need to renew your licence before that time if the business is still in operation.
Small Business Insurance
We insure many aspects of our lives, whether for liability protection against accidents/damages or because they are valuable. Some types of insurance are mandatory (i.e. car insurance if you have a vehicle), some may be included in your employee benefits (i.e. health insurance), and some you may have chosen to purchase on your own. You likely have many of these insurance policies already:
- home/tenant insurance (depending on if you own or rent your home)
- car insurance
- life insurance
- health insurance (such as disability or critical illness)
- travel insurance
So what about business insurance? Is this mandatory if you’re running a small business? What type of insurance would I need? Where can I get this insurance? Let’s go over all of this information together.
Do I Need Business Insurance?
Like most aspects of setting up your business, there isn’t a single answer for all businesses. That’s because it depends on your business activities, size, and location.
If you need to obtain licensing from your municipality in Canada, they likely also require you to have business insurance. You could also be required to have business insurance if you are selling your products at events/markets, in consignment shops, or out of your own commercial/retail space.
If you are running your business out of your home, you may want to get business insurance if you:
- have business customers/clients visiting your home
- want to cover your business inventory
- want to insure expensive business equipment
- are selling a high-risk product (ex. candles)
- want to protect your business income
If several of the above apply, you should consider getting insurance for your business. However, if you only wanted to insure your expensive equipment and the other aspects don’t apply, it may be cheaper to add extra coverage onto your existing home insurance policy. You can call your financial advisor, insurance agent or broker to discuss your specific situation and needs.
Business Insurance Coverage and Benefits
Business Insurance will not only provide many financial benefits, but also peace of mind. Knowing that you are protected in the event of a disaster or lawsuit can reduce a lot of the stress business owners may face.
There are two main types of insurance coverage that will apply to your business: liability and property insurance.
Liability Insurance
Liability Insurance protects you from damages that someone may experience as a result of using your products or visiting your place of business. If your business is structured as a sole proprietor, you are personally liable for any damages from your business. Your personal property and assets are at risk if someone pursues legal action against your business. This makes liability insurance very important.
Your inventory or equipment might only be worth a few thousand dollars, so having insurance on those can be less important. If someone sued your business, that could cost you tens or hundreds of thousands of dollars, possibly even into the millions. The cost of a few hundred dollars a year for liability insurance is well worth it for this level of financial protection.
Property Insurance
Property Insurance covers damages to the business property and its contents. If you operate out of your home, this would provide coverage to any damages to your home caused by the business activities (which may not be covered under your normal home insurance). If you have a separate commercial space for your business, this would protect that property and contents. Property insurance also covers your inventory and equipment.
Business Interruption Insurance is tied to your property insurance. If your property suffers damages that prevent or limit you from conducting business, this would cover your lost income during that time. It may also cover overhead costs that you have to continue to pay while getting your business back operational, such as rent, utilities, and payroll, or costs of a temporary work location.
Where do I get Business Insurance?
If you are running your business out of your home, you will likely be looking for home-based business insurance. This is an add-on to your existing home insurance policy, so you can get it from the same insurance company you use to insure your home. It offers protection to your office equipment, inventory you store either in your home or off-site, business interruption insurance if damage to your home or equipment prevents you from conducting business, and most importantly, liability protection.
If your business is larger than a one or two person home-based business operation, you will likely be looking for standard business insurance. The insurance company you use for your home or car insurance may also offer this type of insurance. If not, you can contact a local insurance broker/agent to find a company that can provide you with business insurance that meets your needs.
If you only need insurance for an event (such as a craft market), you may want to look into Exhibitor Insurance through a specialty insurance company such as PAL. You can either get insurance for a single market or for several events over a period of time. This may be required by the event hosts.
What does Business Insurance Cost?
The price of your business insurance premiums will vary depending on many factors, such as:
- type of products you make/sell
- business income
- price of inventory and equipment you keep on hand
- where you sell your products
- details of your plan (deductibles, coverage amounts)
- claims history
- how many years you’ve been in business
Contact your insurance broker/agent to get a quote based on your specifications.
The cost of business insurance is part of the overhead costs in operating your business. Other overhead costs include equipment, rent and utilities, labour costs, etc. These costs should be factored into your pricing, just like the cost of the materials themselves. We’ll go into this in more detail in a future post.
Summary
This brings us to the end of our 4-part blog series on setting up a small business in Canada. Let’s do a quick summary of all the steps we discussed.
- Identify if your activities are classified as a business.
- In general, if it seems you are expecting to profit off your activities, then it is considered a business
- Choose a structure for your business.
- Options include: sole proprietor, partnership, or corporation
- Register your business name with your provincial government.
- This is a requirement for all provinces & territories (except Newfoundland & Labrador) if you are conducting business under anything other than your full legal name.
- Register for PST/QST Accounts with the provincial governments of British Columbia, Saskatchewan, Manitoba, & Quebec.
- Each province has their own rules on when you are required to register
- Register for a federal business number and GST/HST Account.
- If you are considered a small supplier, this is optional, but can have benefits to your business
- If you no longer a small supplier, this is mandatory.
- In general, you stop being a small supplier once you make over $30,000 in worldwide sales over a single calendar quarter or over 4 consecutive calendar quarters
- Obtain a business licence with your city/municipality.
- Each municipality sets their own requirements for who must obtain a business licence. Depending on your location and the nature of your business, you may not need to obtain a business licence.
- Insure your business.
- Insurance may be required for municipal business licensing in Canada or to sell your products at an event or in a retail/consignment shop.
- If you operate out of your home, you can get home-based business insurance as an add-on to your existing home insurance policy.
Income Tax
One other very important step we touched on briefly is reporting your business income on your income tax return. Where you report this will vary depending on your business structure, but you are required to report all income. Canada does not have a sales threshold after which you must start to claim that income on your taxes. You must report every dollar that you earn.
Blog Series
If you want to read more about any of the steps, click the links below to visit each post:
- 1: Business Structure – Identifying & structuring your business
- 2: Provincial Registration – Registering your business name & PST/QST accounts
- 3: Federal Registration – Obtaining a business number & registering for GST/HST
- – Municipal business permits/licences & small business insurance
If there is anything else you are wondering about in regards to licensing or insurance, or anything else about starting or running a small business in Canada, please leave a comment below this post. I will try to help either by replying to your comment with information or resources for you, or write a new post about that subject.
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