The real cost to operate a service-based business from home in Canada
Updated September 5, 2024
How much money do you actually need to run a home-based service business today in 2024?
Sure, it’s easy and affordable to start a home business but if you’re past starting up, and wondering how much it really costs to keep a service business keep it operating, this article breaks down all the essential costs of operating a business at home.
Startup costs for a home-based service business
The monthly costs to operate a service-based business from home can range between $100 to $200 per month, depending on the type of service business you choose to operate.
Although, startup costs are not the total costs to operate a business long-term. Usually, the cost to operate after you pay the initial startup costs is to forecast (or consider or think about) all the costs for the year ahead that the business will have to pay for.
Knowing how much it costs to operate a business helps entrepreneurs (or sole proprietors and freelancers) plan to go beyond simply starting a business and keep it operating long-term.
Why it’s important to know how much it costs to operate long-term
Did you know that on average, 18 percent to 20 percent of new small businesses fail in the first year? And the rate of failure (or closing the business) increases to 50 percent in five years.
Most reports state new businesses (in Canada and the US) fail to stay open range between
18% to 20% in the first year
50% are still operating by the fifth year
25%-30% make it ten years of operation
That’s because they failed to plan their long-term financial operations.
Effectively, as harsh as this may sound, there is no point in starting a business if the owner or entrepreneur cannot afford to keep it operating long-term. In the first year, the priority goal needs to be discovering the financial methods by which the business will generate enough revenue to keep operating.
Small business statistics reveal that the percentage of businesses that fail is because of
Insufficient cash flow
And management issues
If you combine the two main reasons for failure in entrepreneurship, it means the business lacked cash flow caused by failure to properly manage the finances of the business.
Solving cash flow or money problems in business operations
Many problems are related to (or solved by) money, and as a result, successful financial planning for a business is crucial to its short-term or long-term success.
Every business owner needs to go beyond having the “startup cash” and must have the plan to invest or generate “operational cash” for the long haul, or at the very least a year plan.
Before any new business owner starts they must complete a detailed forecast of their operational expenses to avoid cash flow issues.
Financial planning is crucial to success in small business
Planning is a key part of business success including financial success.
Financial planning is mostly about understanding what all of the costs are to operate a business long-term. It’s also knowing when those same costs will be charged to the business, and preparing a financial plan to cover the cost of the expense when it is due.
Without a money management plan, how will the business continue to operate beyond the cash injection of the startup money?
How long will your startup money last?
Be honest with yourself! How far will your start-up money go? New business owners must be honest with themselves regarding their start-up fund longevity or they simply will not succeed. Remember, businesses fail simply because they do not have cash flow or a plan to handle the management of the business finances.
Questions to ask yourself before beginning to plan expenses to operate a business
Here are two essential questions to ask about the business and its finances.
The first question is, how long and how far will the start-up funds allow the entrepreneur to profit financially?
The second crucial question every entrepreneur needs to ask themselves before starting a business is, how will I pay for all my bills if I start a business?
The way to start determining the answer to both questions is to calculate the total amount for all fixed (e.g., regular monthly expenses) and variable operational costs (e.g., annual insurance fees) on a monthly and annual basis. Don’t worry, we break down the details of what both mean deeper in the article.
Ultimately, a financial plan requires a solid analysis of operational costs for the first year including a financial management plan which includes the ways the business will generate revenue to ensure its long-term success.
Tips to consider before operating a home-based service business
New business owners can be ambitious by thinking they will achieve more in a short amount of time or can bill a 40-hour work week with billable hours.
Typically the goals are financial ones that are challenging to meet, so setting the financial goal from the get-go is essential. If the entrepreneur determines the operating costs are not worth the potential profit the business will generate they will either have to quit operating or discover another financial method to generate revenue.
Some tips to consider before thinking of operating a business
Billable hours
Calculate the number of billable hours you can realistically complete in a week. It’s not realistic to assume in your financial plans that you will bill 40 hours every week unless you want to work 10 or 12-hour days.
Goal setting
Take a close look at the big goals you might set to make sure they aren’t too ambitious. That’s because people can overestimate what they will achieve in one year and underestimate what they will achieve in ten.
For example, double-check that big goals are doable within a reasonable timeframe or a budget. If the goals appear too big for the timeframe, don’t reject the goal altogether, consider breaking the big goals into smaller action steps and expand the deadline to complete the tasks to achieve the goal.
Positive cash flow systems
Every new business needs to establish positive cash flow systems. Cash flow ensures that money is always coming into the business so the business can continue to operate and cover all the monthly, annual, fixed and variable (occasional) costs.
Here are the Biz Class tips for creating positive cash flow systems
Start-up lean
Stop bleeding money: don’t buy anything (or continue to pay for something) that does not generate profit for a startup or new business
Launch with service: add others only when you’re generating profit
Invoice quickly
Monitor and follow up on unpaid invoices quickly
Collect large deposits (e.g., advance of 50%)
Set deadlines (internal deadlines to hit money goals by certain dates)
Once you know your operating expenses for the month and the occasional variable costs that the business has to pay once a year, the business owner or entrepreneur can set a deadline with a financial goal and work to achieve it every month.
Strategies to help generate positive cash flow (so you’re never insolvent)
Any expenditures that can negatively impact your cash flow involve any expenses that are required to operate the business.
There are many ways to help manage and plan the expenditures for the business. Here are a few strategies The Biz Class knows will help manage cashflow for operating expenses
Know the exact amount of every startup costs and operational costs (make a spreadsheet of regular expenses every year and the occasional ones too)
Avoid late payments (interest is added to late bills)
Stagger the purchase date of services (set up a business phone app on a different day from the website payment date)
Don’t pay early, make payments on due dates (use free trials and ask for longer ones if possible)
Start lean (only buy what you need to operate—if you’re no longer using it, cancel it)
These are simple cash control tactics that any business can start using and implement for positive cash flow systems.
Understanding startup costs and operational costs
The costs of starting a business and running the operations of a business are different.
New business owners need to understand two things when they are considering starting a business. Those two things are separated into start-up costs and operational costs.
Costs to start a business
Fully understand the costs to operate for at least one year (and beyond)
Startup costs
The amount of money a new business owner must pay to start a business or get to start operating the business is known as startup costs. These costs can be one-time initial setup fees (e.g., business registration fee) or other one-time fees like accounting costs to set up the business in Quickbooks (i.e., create the chart of accounts) to track expenses for accounting purposes of your business.
Operating costs
As we mentioned, once a business starts operating the goal is to generate enough monthly revenue to cover all operating expenses. After the initial startup costs are invested, the business owner should rely on the sale of their services to cover the operations and eliminate using any savings, credit card or line of credit to stay in operation.
The benefits of understanding how much it costs to operate a business for a year
Understanding the total costs can benefit a prospective entrepreneur because it can
Help to eliminate unknowns or fears about how much it costs to start a business
Help to define the amount of money needed to stay open for business
Examples of startup costs
These costs are usually pre-revenue costs like purchasing software or technology (e.g., Squarespace and new computer) and fees to register the business (e.g., business registration and NUANS name search).
Here are some examples of startup costs
Business registration
Business name registration
Website
Business cards
Signage
Advertising
Operational costs
The costs the company uses for normal day-to-day operations to stay open and operating are considered expenses or operational costs.
Here are some examples of operating costs
Telephone and utilities (internet, hydro)
Website transaction fees
Domain, hosting, and email
Bank fees
Software and technology
Accounting, legal or other professional fees
Insurance
Office supplies and office expenses
Transportation, auto repairs and fuel
Meals and entertainment (networking, cost to acquire customers)
Maintenance and repairs
Advertising
Annual costs
Operating costs can be one-time fees, annual, or occasional depending on the payment requirements for the type of operating expense.
Here are some examples of annual operating expenses
Telephone (new phone)
Technology (new computer or new camera)
Domain and hosting (if not paid monthly)
Software (if not paid monthly)
Banking fees
Annual dues
If the business depends on hardware or technology like a computer or camera to operate (depending on the nature of the business operations) it is wise to include costs to cover maintenance or repairs for things like a new hard drive or the purchase of new technology.
Reviewing the common business expenses while earning an income from a home business will be helpful to forecast operational expenses and also create awareness for the type of expenses that qualify for deductions on business income.
Start a business with $200 or less every month
Starting a business is another way to invest in you.
Yes! It’s possible to start a home-based business with only $200 each month (or less).
if you are wondering how to forecast possible income for a business you have not gained any experience operating The Biz Class business coaching program could be the right fit for you.
Join The Biz Class
Establishing a business is easy, but learning the ins and outs of running and operating a business is the true challenge.
The Biz Class coaching serves to bridge the gap from starting a business to operating with financial success. The coaching program is built on the foundations of practical step-by-step to help business owners and aspiring entrepreneurs reach their financial potential on their terms.
The Biz Class coaching program includes independent course sessions paired with weekly coaching sessions.
The goal of The Biz Class is to help anyone achieve their entrepreneurial dreams and get big value out of business coaching helping them to start operating a successful service or e-commerce business from home.
