Your business structure

Sole proprietorships can generally be set up quickly, easily and for minimal to no cost. Partnerships are slightly more complicated. Limited companies are the most complicated option. This means that they generally have the highest setup costs.

Where you operate and what you do

Provinces/territories and municipalities tend to have their own rules about what businesses need to do to operate legally. These are usually a mixture of rules that apply to all businesses and activity-specific rules. The cost of complying with these depends on where you are and what you do.

Accommodation costs

If you are renting a real-world location for your small business, typical costs are as follows:

• Security deposit

• Rent (for at least one to three months, possibly up to six months)

• Insurance and utilities (e.g. electricity, gas, water, internet)

You may also need to factor in the cost of making changes to your location in line with your business needs.

If you can operate your small business from your home, then you do not need a security deposit or rent. You should, however, factor in the cost of extra insurance and utilities.

Purchase of equipment, inventory and supplies

This category includes any physical or digital products you need to get your business up and running. For practical purposes, equipment can generally be considered a one-off purchase. It usually needs to be replaced at some point, but that is unlikely to be within the initial six months of operation.

Inventory and supplies likely involve a one-off start-up cost plus ongoing costs. Calculating your needs and wants accurately really does go a long way towards launching your small business smoothly.

Inventory

Inventory is anything your business needs to make its products or deliver its services. Itemize this carefully. In particular, know how quickly you are likely to use what you buy. Once you are clear on this, answer the following key questions:.

• How much inventory do you need to keep on-site?

• How much inventory can you keep in off-site storage?

• How far away can this storage be from your home base?

• What discounts can you gain through buying in bulk?

• How would buying in bulk impact your storage costs?

Some businesses do need to keep most or all of their inventory on-site or at least in nearby storage. This is typical of the food industry, for example.

Many businesses can keep some if not all of their inventory in off-site storage. This can be with the manufacturers themselves (dropshipping) or in warehouses (e.g. fulfillment centres).

A very few businesses may not need to keep inventory at all. They may simply buy what they need when they have an order. These types of businesses tend to be fairly easy to start as they have very low start-up costs, but can also have very low potential for growth and development.

The better you can predict your inventory needs, the better equipped you are to buy inventory in the most cost-effective way possible. This often means placing bulk orders. It could also mean committing to paying for regular deliveries.

Supplies

Supplies are anything that your business needs to run but that isn’t directly used for creating products or delivering services. Much the same comments apply to it as to inventory.

Payment for labour or services

Taking on even one employee is a major step for any small business. Firstly, it can add significantly to your start-up costs. Secondly, it creates significant legal and ethical obligations. It also creates the need for management and administration.

For these reasons, it generally makes sense for start-ups to pay for services instead. This approach may increase start-up costs, but is simpler and more scalable.

Start-ups may also need to use digital services. For example, a lot of IT is now run on an “as a service” model. This approach generally lowers start-up costs since it eliminates the need to pay for infrastructure. It can increase ongoing costs, but again it provides the benefits of simplicity and scalability.

Marketing costs

Probably the single biggest mistake start-ups can make is not accounting for the amount of money they need to spend on marketing.

In very simple terms, if you are not reliant on the income from your business, you could choose only to use organic marketing. For example, you could choose to develop your presence on a social media platform and leverage this to grow your business.

If you want to grow your start-up into a fully fledged business as quickly as possible, be prepared to invest in marketing. Unless you’re confident at marketing yourself, this is probably going to involve you having to pay for specialist assistance.

For practical purposes, you can usually think of the biggest chunk of your marketing budget as a one-off cost. Essentially, it’s the cost of getting the ball rolling. Once you have started to get traction, your marketing costs usually come down.