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Starting a business

Comprehensive Guide to Hidden Expenses When Starting a Small Business

Starting a business costs money, no matter what the size. The obvious costs include inventory, hiring employees and building rent. However, there are several expenses that new small business owners overlook. Failing to factor in these costs and expenses could have a devastating effect on the success of a business, especially when finances are tight in the beginning.

Liability Insurance

Depending on the type of business, liability insurance may be required. Liability insurance protects a business from lawsuits and other creditors. The insurance protects the company’s assets and pays for obligations for an annual premium amount, ranging from $500 to $5,000, depending on the size of the business. These types of claims could include an employee’s injury that occurs on company property. The insurance would help pay medical costs instead of coming directly from the business’s own account.Some professions require an additional layer of insurance. For example, financial planners are advised to have errors and omissions insurance. Since financial planners regularly invest their clients’ money, the E&O insurance helps against any mistakes that occur in trading up to $2 million per year. Many other professions require some sort of professional liability insurance, such as accountants, architects, marketing firms and healthcare specialists.


Small business owners have additional taxes that the average person does have to consider. Depending on the business structure and complexity, it might make sense to hire an accountant or bookkeeper to avoid errors. Self-employed businesses may be the most simplistic business structure, but there are still several taxes, such as payroll and sales taxes. Corporations must pay federal and provincial income taxes through a T2 income tax form every year. For Canadian-controlled corporations claiming the small business deduction, the net tax rate is 11 percent. Provincial tax rates can range anywhere from 2 percent to 16 percent, depending on the location. Business owners must consider their tax liabilities and earmark funds for payment. Corporations must also take out payroll taxes for each employee. This includes deductions for Canadian Pension Plan contributions, Employment Insurance premiums and income tax from remuneration. Payroll software to help process these taxes may be another unexpected cost.

Professional Fees, Licenses and Legal Costs

Certain professions require fees or licenses. Accountants are required to have a public accounting license that requires annual renewal. There are additional costs associated with becoming a Chartered Professional Accountant, including initial education costs and renewal costs. CPAs are required to also have a certain number of continuing education hours every year, which could cost additional money. When first starting a business, the owner must decide on a business structure. It will cost money to hire legal representation to help guide through the process and complete the registration. There are also fees to register a business in Canada.


Shrinkage refers to the loss of inventory between the purchase from the supplier and delivery to the customer. This can happen due to damage, error, loss or employee theft. It is difficult to plan for shrinkage, and no business owner expects it to incur.One of the best ways to minimize shrinkage is to have an inventory management system. However, this has a large upfront installation cost and may have a monthly maintenance fee. Small businesses with inventories need to estimate that a certain amount of merchandise will be lost due to shrinkage on an annual basis or pay to have an inventory management system put in place.

Credit Card and Finance Fees

Many business owners now accept credit cards as a form of payment. However, for this convenience, the business needs to pay roughly 3 percent to credit card companies. Not estimating this fee can eat into a new company’s thin profits.New businesses also need to be careful about using credit cards or other forms of lending to help finance the startup phase. Like most credit, it is useful only if it is paid off. New businesses often are not profitable during the initial phases, so using credit can be extremely dangerous. Not paying off balances will incur high interest payments, which digs the company further into debt.

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