Average start-up costs for small businesses vary widely based on your business model, location, and industry. While there is no single amount that applies to every business, understanding the most common startup costs can at least help you make an accurate calculation for your situation. Here’s what you should know about ongoing business expenses and the one-time costs that come with starting a business.
How Much Money on Average to Start a Business?
On average, startup and first-year costs often fall between $30,000 and $40,000. However, it is possible to start a business with an initial investment of $0, $100, $1,000, all the way up to millions of dollars. For example, an online business with no inventory may only require a couple hundred dollars for a website and marketing, while a brick and mortar business may cost hundreds of thousands for a location, furnishings, and equipment. Some businesses also have variable costs, like products and staffing that increase with sales.
Once you calculate the startup costs for your specific business, you may apply for startup funding or Small Business Administration loans. Financing often helps businesses cover costs incurred before revenue starts. The key is to begin saving to start a business early.
1. Incorporation
Incorporation involves setting up a business structure and filing all the necessary legal paperwork with your state and local government. You can hire a corporate lawyer or file paperwork yourself. Fees vary by location but are often just a few hundred dollars.
2. Website
A website makes your business look legitimate and gets your products or professional services in front of potential buyers. There are free website builders, but custom domains and advanced features can cost tens to hundreds of dollars.
3. Advertising
Advertising and marketing costs are considered variable expenses, since they change based on your company’s budget and goals. It’s not absolutely necessary to advertise upfront. But it can help you reach customers who otherwise wouldn’t know about your offerings. You can set your own budget on platforms like Facebook and Google, starting at just a few dollars.
4. Inventory
Product expenses vary based on how much inventory you need to purchase upfront and the cost of your items. In addition to the actual purchase, factor in shipping costs and storage space. There are often bulk discounts, but purchasing too much inventory also comes with more location or storage expenses. Budget anywhere from a few hundred to hundreds of thousands for this category, depending on the cost of your goods or supplies.
5. Business Insurance
General liability insurance protects businesses from legal expenses incurred due to damages or injuries incurred on your location or as a result of products or services. Some businesses may also benefit from property insurance, errors and omissions, and auto or business policies. Typical expenses for this startup cost start at a few hundred dollars per year.
6. Software
Many businesses use accounting software and similar tools to manage daily operations. These programs may have a small monthly fee or a one-time purchase cost. Budget tens to hundreds of dollars annually for this expense.
7. Business License
A business license is a permit required by many states or counties. Small business owners spend between $50 and a few hundred on this expense. If you already have an attorney, they may file it for you, so just roll it into your legal fees.
8. Physical Location
Brick and mortar stores or companies with a physical office will need to factor in rent or mortgage expenses. Don’t forget utilities as well. Depending on size and location, this can cost a couple of thousand per month or more.
9. Equipment
Equipment costs vary widely. Businesses that need heavy manufacturing or construction machinery should plan to spend thousands to hundreds of thousands, while companies that sell handmade products and just need small items like vacuum sealers or label makers may just spend $20 to $50.
10. Furniture
If you have a retail or office space, factor in furnishings like chairs, desks, and cabinets. Depending on the size and type of furniture needed, this can cost a few hundred dollars to several thousand.
11. Staffing
If you need help running your business, recruiting and payroll can represent major expenses. The amount depends on the size of your team, their skills and experience, how many hours they work, and your location. Generally, you can expect to spend thousands of dollars a month for each employee.
12. Taxes
Taxes accrue based on how much you earn. But it’s important to set money aside so you don’t get hit with a huge bill at the end of the year. Federal corporate taxes are 21 percent. And factor in state taxes as well.
How Small Business Owners Can Save on Costs
It can be tough for a business owner to cover all the expenses above without help. You can begin with inexpensive businesses to start and invest more as you make more money. But, here are some methods that may help in the early days.
- Apply for small business loans: Look for SBA-backed loans, which often come with competitive rates and are easier for new entrepreneurs to qualify.
- Get a business credit card: Only use this to cover expenses you can pay off the following month. This can bridge the cash flow gap and help you build your credit score for future purchases that require a credit report.
- Start online: Businesses without a dedicated location are much less expensive and there are more trending business ideas you can start with. If possible, start online to earn revenue before buying or leasing property.
- Choose an inexpensive location: Booming cities come with higher rent and other costs. Choose a spot away from the action to save.
- Barter: If you need professional services like legal help, contact other small businesses to swap services. Perhaps you can build them a website in exchange for help with incorporation.
Figure Out How Much Money to Start a Business with Our Startup Calculator
Now that you know the average startup costs for a small business, it’s time to apply these to your own situation. Our small business startup calculator can help you accurately calculate startup costs by determining which are most relevant to you. Include both one-time purchases and ongoing expenses to get a full picture.
