For many entrepreneurs and aspiring business owners, launching a startup is a dream come true. Each year, an average of 96,580 new businesses are created in Canada, with a total of 68.8 percent of those businesses considered small businesses.\r\n\r\nMost new businesses incur startup costs to get off the ground. Without sufficient capital, you may have difficulty procuring real estate and equipment or hiring the staff you need to launch your startup.\r\n\r\nIdentifying your startup costs gives you a solid foundation to build your new Small Medium Enterprise (SME) upon. Securing your finances before you open also increases the likelihood your business will succeed without running into cash flow issues or requiring unexpected capital.\r\nWhat are startup costs?\r\nStartup costs are the expenses you incur when starting a new business. They represent what it takes to transition a business from an idea to actually becoming a functional, operating company.\r\n\r\nYour startup costs are dictated by multiple factors, including the:\r\n\r\n \tType of business you’re opening\r\n \tIndustry you intend to operate in\r\n \tSize of your company\r\n \tEquipment, materials, and property you require\r\n\r\nTo that end, startup costs aren’t one-size-fits-all for all new businesses. The costs you incur to launch your startup will likely differ from those incurred by competitors—or even other businesses in your industry or location.\r\nWhy calculate startup costs?\r\nUnderstanding the unique financial needs of your startup—before you begin—helps you prepare, stay on-target, and mitigate the likelihood you’ll need to incur unplanned debt or make unintended changes to your business plan.\r\n\r\nIn a way, calculating your startup costs is similar to planning for a new car purchase or buying a house. Figuring out your startup expenses provides you with a framework to work from and helps determine if your idea is financially feasible at every stage, from initial conception to grand opening and beyond.\r\nWhat is the average cost to start a small business?\r\nAccording to data analyzed by LendingTree:\r\n\r\n \t21 percent of business owners start a business for less than $5,000 USD\r\n \t11.5 percent of business owners incur $5,000 to $9,999 USD in startup costs, and\r\n \t16 percent require $10,000 to $24,999 USD.\r\n\r\nHowever, depending on your industry and specific business needs, startup costs may potentially exceed $3 million USD, though only 0.9% of businesses incurred such significant startup costs.\r\n\r\nAdditionally, the U.S. Small Business Administration estimates an average startup cost of $3,000 USD for microbusinesses and $2,000 to $5,000 USD for most home-based businesses. While these numbers are based on U.S. data, figures would be similar in terms of spend for Canadian businesses.\r\nUnderstand what types of costs you'll have\r\nBusiness startup costs aren’t all front-loaded at the time you launch your business. Understanding the types of startup costs your business may incur over its lifetime helps you reach and achieve your goals and milestones. \r\nOne-time vs. ongoing costs\r\nSome startup costs are fixed one-time expenses. After making a payment in full, you never have to worry about the cost again. Other expenses are fluid and ongoing, and may even evolve as your business grows.\r\n\r\nFor example, developing a business plan is likely a one-time expense per business. Though you may be able to write a business plan yourself, it may require significant (and costly) market research to fully map out your expectations, budget, and financial forecast or to see what’s worked (or hasn’t) for your would-be competitors.\r\n\r\n\r\nIn contrast, other startup costs are ongoing. Incorporating your business comes with fees for registration, licensing, inspections, and permits, some of which need to be paid on a renewal basis. Rent, utilities, and subscription fees to required software are also examples of ongoing startup costs.\r\nEssential vs. optional costs\r\nStartup costs for opening a new business may be unavoidable and essential. For example, if you plan to sell merchandise, inventory represents an essential cost that’s likely to make up 17 to 25 per cent of your total budget.\r\n\r\nOn the other hand, some expenses, such as marketing costs, are optional when you’re first starting out. Instead of spending money on paid ads or billboards, you can instead decide to get creative or take advantage of social media, your network, or word-of-mouth marketing. When the time is right and your budget allows for it, you can then increase your marketing budget to attract new clients or customers.\r\nFixed vs. variable costs\r\nSome business startup costs are a fixed rate for a set period of time. Utility bills, rent, and insurance are representative of fixed startup costs; you may reasonably set aside a fixed amount of money for each expense without significant changes from period to period.\r\n\r\nVariable startup costs differ from one period to the next. For example, a woodworker may require $40,000 of materials in one quarter. In the next quarter, customer demand may increase, necessitating an increase in the cost of acquiring materials.\r\nEstimate your startup costs\r\nNo two businesses are alike. Your unique approach, preferences, and plans all play a role in the total startup cost for your new business. Estimating your startup costs allows you to develop and follow a budget, ensuring you have the money you need for each stage of operating your business. To help you get started, RBC provides a free business start-up cost template.\r\nDetermine your startup expenses\r\nBegin your startup cost estimate by listing your expected expenses, including:\r\n\r\n \tRent, real estate, or coworking fees\r\n \tIncorporation, licensing, permit, and registration fees for your industry, city, state/province, and country\r\n \tEquipment, furniture, materials, and tools you require to begin operations\r\n \tMarketing\r\n \tUtilities and insurance\r\n \tInitial inventory\r\n \tCredit and loan repayments\r\n \tPayroll\r\n \tEstimated taxes\r\n\r\nOnce you compile your list, research the average startup cost for businesses in your industry. Getting quotes from contractors, suppliers, and vendors to put a price on each expense. Consult your local and regional business departments and agencies to determine the combined cost of registrations, fees, and permits your business requires.\r\n\r\nFinally, set aside an allotment of funds to serve as an emergency fund. Maintaining sufficient working capital may keep your company afloat if business doesn’t pick up as quickly as you expected, or if you run into any snags along the way.\r\nIdentify your startup assets\r\nYour startup may launch with a handful of business assets—items that can be assigned some tangible value. Startup assets may include funds you set aside for startup purposes, land or property owned by your business, vehicles, trademarks, and even intellectual property.\r\n\r\nSome of your assets may begin as expenses, such as furniture and equipment. However, once you’ve purchased the items, they, by definition, become business assets.\r\nHow to save on startup costs\r\nStarting a business is rewarding, but startup costs are often significant and, in some cases, downright frightening. Making every dollar count is crucial to the success of a new business.\r\n\r\nKeeping initial startup costs to a minimum requires some creative and frugal thinking, but is possible. Reduce and save on startup costs by:\r\n\r\n \tPurchasing used equipment and tools, or leasing new equipment instead of buying it outright\r\n \tReducing overhead—for example, operating in a coworking space or working from home instead of renting dedicated office space\r\n \tReassessing your business plan to scale back planned inventory or services\r\n \tOperating your new business as a side hustle while working in more traditional employment, even temporarily\r\n \tBartering your goods or services in exchange for goods, services, or discounts from other businesses, partners, and vendors\r\n \tStaying on top of your bookkeeping to track your cash flow, expenses, and receivables\r\n \tHiring only when your business is capable of supporting new staff\r\n\r\nAre business startup costs tax-deductible?\r\nReasonable and legitimate business expenses are tax-deductible in Canada, including:\r\n\r\n \tAdvertising and marketing\r\n \tRegistration and licensing fees, permits, dues, and taxes\r\n \tInsurance and utilities\r\n \tProfessional fees\r\n \tInventory and supplies\r\n\r\nBear in mind that some purchases are considered capital expenses. Depreciable property must be deducted over time rather than in full in the year in which you made the purchase.\r\nHow far back can I claim startup costs?\r\nYou may only deduct business expenses in the fiscal period you incurred the cost. In other words, the date you start your business may not necessarily coincide with the date you opened for business.\r\n\r\nIf you purchase inventory two months before you plan to begin selling products, your start date should be the day you purchased inventory. If this is not the case, the expense will not be tax-deductible.