Behind the glitz and glamour of entrepreneurship lies a crucial consideration that can make or break your business venture: the cost of getting started. While your vision, passion, and business acumen are invaluable, you cannot overlook the financial aspects of starting a business. It’s a journey that requires careful financial planning, a keen understanding of the city’s economic landscape, and an awareness of the hidden expenses that can catch even the most well-prepared entrepreneurs off guard.
In this article, we will embark on a comprehensive exploration of the true cost of starting a business in Toronto. We will dive into the various components that make up this financial equation, shedding light on both the expected and unexpected expenses that aspiring business owners need to navigate. Let’s uncover the real cost of starting a business in Toronto.
- Starting a business requires a solid understanding of the basics of business, including market research and legal requirements.
- Initial costs can include legal and licensing fees, office space and location costs, marketing and advertising costs, staffing and labour costs, inventory and supply chain costs, technology and infrastructure costs, and unexpected costs.
- Creating a detailed budget before starting your business can help you avoid unpleasant surprises and set yourself up for success.
1. Initial Costs Involved
Starting any requires a significant amount of investment. Before you dive in, it’s important to understand the initial costs involved. Here are some of the most common expenses you’ll need to consider:
To legally operate your business, you’ll need to register it with the government. In most provinces, registering your business as a corporation costs between $300-$400, while federal registration costs are usually $200-$250. Keep in mind that 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.
A solid business plan is the foundation of any successful business. It’s important to take the time to create a comprehensive plan that outlines your goals, target market, competition, marketing strategy, and financial projections. Toronto’s Small Business Enterprise Centre offers free business plan review and consultation services. Once your business plan is prepared, book a one-on-one consultation where staff will review your business plan to ensure you started in the right direction.
Equipment and Inventory
Depending on your business, you may need to invest in equipment and inventory. This can include everything from computers and software to raw materials and finished products. Make sure to do your research and shop around to get the best deals on the equipment and inventory you need.
2. Office Space and Location Costs
When starting a business, one of the most significant expenses you will have to consider is office space. The cost of office space in Toronto varies greatly depending on the location and type of space you choose. In this section, we will explore the factors that impact office space costs and how to make the best decision for your business.
Leasing Vs Buying
When it comes to office space, you have two options: leasing or buying. Leasing is a popular choice for many businesses because it allows for flexibility and lower upfront costs. The cost of leasing office space in Toronto ranges from $10 to $70 per square foot, depending on the location and type of space.
On the other hand, buying office space can be a good long-term investment for your business. The cost of buying office space in Toronto ranges from $200 to $1,000 per square foot. While the upfront costs of buying are higher, it can be a good investment in the long run, especially if you plan to stay in the same location for a long time.
Location Impact on Cost
The location of your office space can have a significant impact on the cost. Downtown Toronto is the most expensive area to rent or buy office space, with prices ranging from $20 to $100 per square foot. If you are looking for a more affordable option, consider areas outside of the downtown core, such as North York or Scarborough, where prices range from $10 to $50 per square foot.
When choosing a location, consider factors such as accessibility, transportation, and proximity to suppliers and customers. Being located close to your target market can help reduce transportation costs and increase convenience for your customers.
3. Legal and Licensing Fees
Here are some of the costs associated with legal and licensing fees that you may incur.
Before you can start operating your business in Toronto, you need to register your business with the government. The cost of business registration varies depending on the type of business structure you choose. For example, registering a sole proprietorship costs $60, while incorporating a business costs $360.
Permits and Licenses
Depending on the nature of your business, you may need to obtain permits and licenses from the City of Toronto or other government agencies. The cost of permits and licenses vary depending on the type of business and the number of permits required. For example, a food establishment license costs $1,147 per year, while a building permit for a new commercial building costs $1,743 plus $0.53 per square foot of floor area.
It is important to note that failure to obtain the necessary permits and licenses can result in fines and legal action. Therefore, it is essential to research and obtain all the necessary permits and licenses before starting your business.
4. Marketing and Advertising Costs
Marketing and advertising are essential for promoting your business and attracting customers. However, it can be challenging to determine how much to spend on marketing and advertising. According to a 2019 BDC survey, Canadian small businesses spend an average of just over $30,000 per year on marketing costs, while those with 20 to 49 employees spend twice that amount, and companies with 50 or more employees tend to have marketing budgets in excess of $100,000.
When it comes to marketing and advertising costs, it’s important to have a clear understanding of your target market and the channels that will be the most effective for reaching them. For example, if your target audience is primarily active on social media, you may want to invest more in social media advertising. If your target audience is more likely to read print publications, you may want to consider print advertising.
In addition to traditional marketing and advertising channels, there are also many digital marketing options available. These can include email marketing, search engine optimization, pay-per-click advertising, and social media marketing. The cost of these options can vary widely, but they can be an effective way to reach a large audience and drive traffic to your website.
5. Staffing and Labour Costs
For any business, staffing and labour costs are some of the most significant expenses. You will need to hire employees to help you run your business effectively. Here are some things to consider when it comes to staffing and labour costs.
The hiring process can be time-consuming and expensive. You will need to advertise job openings, review resumes, conduct interviews, and perform background checks. You may also need to pay for job postings on job boards or in newspapers. Make sure to budget for these expenses when planning your staffing costs.
Employee benefits are an important part of labour costs. You will need to offer competitive benefits to attract and retain talented employees. These benefits may include health insurance, dental insurance, retirement plans, paid time off, and more.
According to the City of Toronto, the minimum wage rate in Ontario is $14.35 per hour. However, you may need to pay more than this to attract skilled employees. Make sure to budget for employee benefits and wages when planning your staffing costs.
6. Technology and Infrastructure Costs
As a new business, you’ll need to consider technology and infrastructure costs. These costs can vary depending on the type of business you’re starting and the infrastructure you’ll need to support it.
One of the first technology costs you’ll need to consider is your IT setup. This includes hardware such as computers, printers, and servers, as well as software such as operating systems, productivity software, and specialized business software.
Hardware costs can range from a few hundred to a few thousand dollars depending on your needs, and software costs can add up quickly. Consider using open-source software or cloud-based solutions to save money on software costs. You can also lease hardware to reduce upfront costs.
Once your IT setup is in place, you’ll need to consider maintenance costs. This includes ongoing hardware and software maintenance, as well as IT support services.
Hardware maintenance costs can include regular upgrades, repairs, and replacement of outdated equipment. Software maintenance costs can include updates, patches, and support services. IT support services can include help desk support, network administration, and cybersecurity services.
Consider outsourcing IT support services to reduce costs. You can also use remote monitoring and management tools to reduce the need for onsite support.
7. Unexpected Costs
While you may have planned for certain costs such as equipment and rent, there are always unexpected costs that can arise. It’s important to have a contingency plan in place and be prepared for anything that comes your way.
One unexpected cost that many new business owners overlook is insurance. Depending on the type of business you’re starting, you may need to purchase liability insurance, property insurance, or workers’ compensation insurance. These policies can add up quickly, so it’s important to research your options and budget accordingly.
Liability insurance protects your business in case someone is injured on your property or if your product causes harm to someone. Property insurance covers damage or loss of property due to events like fire or theft. Workers’ compensation insurance is required if you have employees and covers medical expenses and lost wages if they are injured on the job.
Another unexpected cost that new business owners should plan for is a contingency fund. This is a fund set aside for emergencies or unexpected expenses that may arise. It’s recommended that you have at least three to six months’ worth of expenses saved up in case of a slowdown in business or unexpected expenses.
Some unexpected expenses that may arise include repairs to equipment, legal fees, or unexpected taxes. Having a contingency fund in place can help you weather these unexpected costs without having to dip into your personal savings or take on debt.