Whether you are thinking about starting a new business or expanding your current one, there are many things that can influence the success of your new venture. One of these aspects is location, or more exactly, the country you are planning to expand in.
For quite some time now, U.S. entrepreneurs have started to consider opening a business north of the border, in Canada. But is Canada a better business environment than the United States, or is their decision based solely on diversification?
The answer is far from being a straightforward one, but we are here to get the facts right and help those who are still not sure what to do, to make a more educated decision. But before we dive into what makes Canada so attractive for foreign entrepreneurs, let’s take a look at each of the country’s banking sector.
Canada vs. The U.S. banking sector
Despite performing many similar functions, the Canadian and U.S. banking sector are very different if one was to take a closer look.
The first formal Canadian bank was opened 26 years after the First Bank of the United States, and because it carried a British influence, Canada seemed to value stability over experimentation. The U.S. banking sector seemed to always be more decentralized and localized, leading to a lot of trial and error. But many would say that, if it wasn’t for all these things that failed and got changed, we would not have the world’s largest bank system, as we now do. On the other hand, The Canadian banking sector was declared back in 2008 the safest in the world, according to the World Economic Forum.
After the financial crisis, which had only little impact on Canadian banks, U.S. banks are still spending most of their time building capital. As a result, this allowed Canadian banks to have higher leverage than U.S. banks, making them more reliable in the eyes of consumers.
Ultimately, the fact that Canada was less affected by the financial crisis led to a number of things. For example, Canada has an average practical tax rate higher than the United States, which means a U.S. citizen takes home around $15,000 more each year. This also affects the cost of living, making it higher for Americans than for Canadians. For example, rent for a one-bedroom apartment in New York City is, on average, a little over $3,000, while in Toronto it slightly exceeds $1,500. Americans also pay more for food, transportation, and clothing.
All of these things, plus some other factors, such as family benefits, healthcare, and education costs, make Canada a much more appealing location to open a new branch or relocate altogether.
What about the investment sector?
10 years ago, Canada was not exactly a friendly place for investors. Since then, several startup hubs started appearing, all focused on identifying, nurturing, and helping new businesses develop, and it sure did work. Not only did tech start-ups start to thrive, with Toronto alone hosting between 2,500 and 4,000 startups, but big tech companies such as Facebook and Google also have a solid presence in both Toronto and Montreal. Intel, another infamous tech company, also stated recently that they are planning on opening a new graphics-chip design lab in Toronto, joining Samsung and NVIDIA, which both have research labs in the city.
But in terms of investment, Canada not only has the room to welcome new companies, but they also have the talent pool to support this. And even though Canada’s salaries are not jumping out the window, as you may see if you were to take a look at the paychecks in Silicon Valley, the low cost of living does allow people to make the most out of their money.
There is no reason to talk about the investment potential that the United States has, with more than 30 million small businesses operating in the U.S. as of 2018, but a bigger business environment also means bigger competition. This is why many entrepreneurs fear the U.S. market may not have a place for them.
To fund a business, one needs capital. Capital comes from applying for loans, seeking investors, or saving up money, although the last scenario is often the less common. Canada offers several special tax considerations for US investors, and this means lower costs, which ultimately accounts for profit. What’s more, U.S. investors can take advantage of the various types of loans Canada has available.
U.S. entrepreneurs venture across the border
Those seeking to take their business north of the border need to keep in mind some important things, whether they seek to expand their existing business or open a new one. One of the major aspects that attract entrepreneurs to Canada is the decrease in corporate taxes. The corporate tax in the U.S. is 21%, whereas in Canada it is 15%, 3% lower than 10 years ago. This means if your business generates $1 million a year, you could be saving $60,000 by opening a business in Canada.
The United States sure has one of the top startup hubs in the world, but Canada is expanding rapidly. The Toronto-Waterloo Region Corridor is known as the Silicon Valley of the North and has helped 15,000 tech companies develop. Add this to the lower cost of living and operating, and you get why so many U.S. entrepreneurs consider Canada a venture option.
On top of everything, Canada has one of the most stable economies in the world. Canada ranks 6 on Forbes’ list of Best Countries for Business, whereas The United States ranks 17. This makes sense when you think of the fact that Canada wasn’t too affected by the economic crisis.
Doing business in Canada may be more financially accessible, but this doesn’t make it much simpler. If you are planning on expanding your U.S. business to Canada, you need to keep in mind currency exchange and study the market to properly pay employees. You may want to hire some financial experts to help you out with that.