How much does it cost to start a new business?

You need to spend money to make money — but just how much depends on the type of business you’re looking to start, on top of other factors. Estimating the different costs you might incur can help you apply for financing that truly meets your new business’s needs.

How much does it cost to start a new business?

Business startup costs can range quite extensively from under $1,000 to over $10,000. How much you actually pay depends on your business type, where you’re located and the equipment and supplies you’ll need to get up and running. For example, it will cost much more to start a new restaurant than it will to start a freelance photography business out of your home.

How to calculate startup costs for a small business

Calculating the cost for a startup is relatively simple — you just need to add your estimated expenses together to get a full picture of what your budget should look like. Do some research into the type of business you’re planning to start in order to give you an idea of the costs involved.

8 common startup costs

While your specific costs will vary, these are the eight most common factors to consider when deciding how much you’ll need to borrow:

1. Registering your business: $200 to $400

In most provinces, registering your business as a corporation costs between $300-$400, while federal registration costs are usually $200-$250. But licensing and permit costs can vary, so it’s best to meet with an accountant and attorney to guide you through the process. Just be sure to work their fees into your budget as well.

2. Office space: $5-$70 per square ft

Renting or buying office space is typically one of the larger fixed expenses your new business will face. On average, you can expect to pay $5-$70 per square ft. Keep in mind that the office location will drastically impact the price. If you want office space in the business district downtown, be prepared to pay top dollar. However, while larger cities are often more expensive, they may offer more amenities and easier access for your employees.

To reduce this cost, you may want to consider working from home or out of a coworking space for those first few months while you’re getting started. Once you’re ready to expand into an office, take the cost of rent, utilities and taxes into account as well as any changes you plan on making to the layout of the office.

3. Equipment and supplies: Varies

The equipment and supplies you need will vary greatly depending on the type of business you plan on opening. Because of this, it’s critical to do your research.

You’ll likely need to finance some of your equipment, so prepare a budget and a solid business plan so you can present it to lenders. And if you plan on hiring employees, keep in mind they’ll need their own equipment and supplies, too.

4. Inventory: Varies

You’ll have no concerns about inventory if you provide a service. But any business involved in retail or manufacturing will need to calculate their inventory costs.

To create a budget, work backward from your revenue goal. Use the price you plan on selling your inventory at and how much you realistically plan on selling in a year to help guide you.

5. Employees: 1.2 to 1.4 times each employee’s annual salary

Payroll should cover more than just an hourly salary. Consider these other expenses when calculating how much you should budget for your employees:

Because it varies widely across the country and by industry, there’s no set number to keep in mind. Instead, you should be prepared to dedicate a significant portion of your budget to payroll at first.

Remember: You also need to be paid, so be sure to account for your own wages when determining employee costs.

6. Insurance: Around $500 to $5,000 per year

Canadian small businesses will pay anywhere from $500 to $5,000 per year. Your costs will vary depending on where you’re based, your business’s risk profile and the provider you choose.

When comparing business insurance providers, you might want to look into these four types of coverage depending on the industry you’re in:

7. Website and marketing: Varies

If you plan on using an online platform like WordPress, Wix, Squarespace or Weebly, you’ll likely only need around $10 to $35 per year to register a domain and create a website for your business. If you want to pay someone else to custom design your website for you, you could end up paying a few thousand dollars.

As for marketing, most of these costs can be reduced by simply using social media and other free brand-building platforms. You can also create flyers, buy ad space on Facebook or print business cards. As a benchmark for your budget, a 2019 Business Development Bank of Canada (BDC) survey revealed that small businesses spend around $30,000 on marketing, while businesses with over 50 employees tend to spend upwards of $100,000.

8. Taxes: Approximately 12% of revenue

If your a small business registered as a corporation, you should expect to pay a combination of federal and provincial/territorial tax rates. The costs can get tricky, though. Rather than calculating them on your own, contact an accountant to ensure your business is following all regulations. It can help save time and money now — and some headaches down the road.

Must read: How to finance your startup

How can I pay for initial startup costs?

While your options are limited compared to businesses that have been around for a while, you still have a few ways to finance your startup:

• Equipment loans. If your business requires equipment to get up and running, equipment loans allow you to buy necessary machinery.
• Business credit cards. To help build your business’s credit and finance smaller startups costs, you may want to compare a few of the leading small business credit cards. Some even offer bonus intro APRs for the first year — giving you some breathing room to pay off expenses slowly over several months.
• Personal loans. Some banks and online lenders allow you to use a personal loan for business expenses. However, you’re typically limited to borrowing $50,000 or less.
• CSBFP loans. The Canada Small Business Financing Program (CSBFP) Loan is a government-backed loan offering up to $1,150,000 in funding and some of the most competitive interest rates. To apply, you’ll need to head to your local bank, credit union or registered financial institution and ask if they offer CSBFP loans. While government-backed, the decision to approve your loan ultimately lies with the financial institution.

Bottom line

From equipment and inventory to payroll and office space, funding the cost of your startup can put a huge dent in your personal finances. Before you dig into your savings, compare business loan options that might work for your new company.

Frequently asked questions

• What business startup costs are tax deductible?

  Claiming business startup costs as tax deductions can be a bit tricky. According to the CRA, you can only claim expenses that you paid during the fiscal period in which you did business. So you have to have a very clear start date in order to justify claiming your expenses.

  Depending on the type of business, it can be a challenge to define an exact start date. For example, if you purchased a building to open a shop, your first day of business might be when you start renovating it or start using at least 90% of it for business purposes. Once this capitol property is being used to earn income, you can deduct current, and even past, business expenses.

  In order to navigate the complex world of business taxes, and to make sure you’re reaping the benefits of the tax system, your best bet is to work with a certified accountant or tax professional.

• What's the difference between startup costs and operating costs?

  A startup budget includes some initial operating costs, like website domain registration, down payments on office space and licensing fees. But your operating budget will be what you create year after year as your business grows. Any startup costs will get deleted from your budget once they’re initially paid out, and only ongoing costs will remain part of your operating budget.

• Can I lease my equipment instead of buying it?

  Yes. If you don’t have the budget to make large monthly payments or think you might want to upgrade your equipment in a few years, compare the difference between leasing versus financing equipment to see which option is best for your business.