Running a small business is exciting and can be a rewarding and profitable experience. However, it comes with costs. In this article, learn about the top 10 small business costs you should know about.
Lawyers can help out small businesses in many areas, including:
- Choosing the business entity: Working with a lawyer and discussing the size of your business and tax implications can help you decide between a sole proprietorship, partnership, LLC, or corporation.
- Ensuring compliance: By making sure you're following federal, provincial, and local laws.
- Reducing Risk: Business has risks of various kinds. A lawyer can help keep you prepared for these.
- Taxes: A lawyer, or accountant, can help ensure you're paying the taxes you owe and saving you money by identifying valid business deductions and reimbursements.
- Agreements: A lawyer can help you establish agreements. In particular, agreements with vendors, partners, employees, customers, and so on.
- Picking the name: You'll need to research your business name ideas to ensure they are not in use or trademarked. A lawyer can help with this.
- Licenses and Permits: You can consult a lawyer about which licenses and permits you'll need to set up and open your business.
- Contracts: Over time you may find you need contracts for employees, vendors, and so on. A lawyer can assist in creating these and ensuring they are compliant.
- And more.
In a 2019 survey, 88.56% of respondent lawyers indicated that they charge clients through an hourly rate, with 62.71% of indicating they use flat rates and 33.56% indicating they use a contingency fee.
Per this survey, for business law it would typically cost between $186-$435/hour depending on how many year of experience the lawyer has.
Whether you rent or own your space, consider the utilities that you'll be paying to keep your physical store or office running smoothly. Utilities you'll likely need to pay for include:
- Cable, and
- Phone lines.
If you're renting, be sure to ask which utilities will be included and which you'll be paying. In some cases, even when you're renting you'll need to set-up certain utilities yourself.
If you own, you'll likely be paying for all of these. Take a look into the providers in your area.
There are several types of small business insurance you'll want to take a look into for your business:
- Commercial general liability
- Business interruption insurance
- Product liability insurance
- Professional liability insurance
- Cyber risk coverage
- Equipment breakdown insurance
- Commercial property insurance
- Commercial auto insurance
You can learn more about each of these types of insurance here.
Depending where in Canada you're located, you'll be paying at least minimum wage for employees.
The lowest minimum wage in Canada is in Saskatchewan at $11.32/hour. The highest is in Alberta at $15/hour.
However, wages are only one part of the costs of having employees.
It's said that for every $1 an employer invests into an employee, that employee is required to generate at least $3.15 in revenue for the employer to retain the $1 after taxes (at the top rate of 53.53%).
Other costs associated with having employees include:
- Canada Pension Plan Matching
- Employment Insurance
- Worker Compensation Costs
- Employee Benefits
- Vacation Days
- Stat Holidays
- Sick Days
- Employment Insurance, and
- Severance Costs.
5. Employee Recruiting & Training
Both recruiting and training new employees will have associated costs.
For recruiting, most online job posting websites charge a fee to post an ad. As well, you or another member of your team will be spending time writing the job posting, posting the ad, reviewing candidates, and conducting interviews. This time put into recruiting is an indirect cost.
Once you've found the perfect candidate, you'll need to spend time and money training your new employee.
Training can have direct costs, including:
- Purchasing new uniforms
- Purchasing new tools and materials, and
- Salary payment.
Training also can have indirect costs, including:
- Additional staff needed to perform the duties of the trainer
- Lost time, and
- Errors, like incorrect orders.
An accountant can help a small business in many ways, from loan applications to tax filing and government audits, the list is long.
However, you won't necessarily need to employ an accountant full-time. Many small businesses can hire an accountant simply for the hours of their time that is needed.
On average, accounting work completed by a Chartered Professional Accountant will cost between $150-$450/hour.
If the job can be done by a bookkeeper instead of an accountant, this price range is reduced to $25-$80/hour.
Some common accounting costs for a small business include:
- Compilation engagement and corporate tax return: $1800-$4000.
- Review engagement and corporate tax return: $3000-$8000.
- Audit engagement and corporate tax return: $4000 and up.
As an alternative to paying hourly, certain accounting companies allow you to purchase packages so there are no surprises about the cost when the project is complete. Be sure to ask what pricing models are available when consulting an accountant.
To get the word out about your products or services, you'll want to have a solid marketing strategy. This may include:
- E-mail Marketing
- Social Media (posting and advertising)
- Content Marketing (blogs, podcasts, videos)
Will you be doing the marketing yourself, or hiring an agency or employee? In each of these situations there will be costs associated.
Several e-mail marketing programs allow for free use under a certain number of subscribers. After this, you'll pay based on how many people are on your list.
Social media is free to sign-up for and use. There are programs online you can use to design your materials for free, like Canva. If you want to run ads on these programs, or have local influencers promote your products or services, there will be costs associated.
Advertising on platforms like Google, Facebook, or Instagram allow a lot of flexibility in the pricing and duration of your ads. You can customize the audiences you'd like your ads to target and the amount of money you're willing to spend.
Finally, content marketing will require you to have a website to host this content on, as well as a unique domain, which all have associated costs. Also, creating content yourself will require a time-commitment, or if you hire an employee or agency to create this content there will be costs associated as well.
Will you be renting a space or purchasing a space for your business?
If you are renting you'll want to keep in mind damage deposits, insurance and rental price increases.
If you purchase a property you'll be paying a mortgage, insurance, annual property taxes, and repairs.
Will you be commuting to get to your job? If so, factor in the costs of gas or monthly bus/train passes as part of your expenses. In certain locations you will need to pay for parking as well.
If you will be driving from location to location throughout the day the cost of gas can build-up quickly. You can track your mileage and use this as a business expense in certain cases. MileIQ is one recommended app to help you track your mileage.
Will you be providing health and dental benefits to your employees? Or, if you don't have arms-length employees will you be wanting these benefits for yourself and your family?
A Health Spending Account is a cost-effective way to provide health and dental benefits to yourself and/or employees. In simple terms, health and dental benefits offered through this plan are fully tax deductible to the business and received 100% tax free by the employees. There are no premiums, hidden fees, deductibles, copay, or complex policies.
You are suitable for a Health Spending Account if you:
- Own a business
- Pay medical bills
- Pay income tax / receive T4 income
You can learn more about Health Spending Accounts in the two eBooks linked below:
Learn more about Health Spending Accounts (Incorporated Professionals)
Learn more about Health Spending Accounts (Employee Benefits)