For a lot of people, starting a business is a lifelong dream. And yet, having a great idea or possessing a unique skill isn't always enough to get your venture off the ground: You also need financial resources to make it work. Business startup costs can vary significantly depending on your industry and the scale of your operations. You might be able to launch a home-based business with little more than a computer and an internet connection.
But to kick-start a company that relies on specialized equipment or lots of inventory? That could add up to tens, if not hundreds, of thousands of dollars depending on the industry and size of the endeavor.
What business startup costs should I prepare for?
Securing the necessary financing is one of the largest obstacles entrepreneurs face. Even if the concept behind your new company seems simple enough, you may face costs that you never anticipated. Having a realistic sense of your potential expenses will not only help you properly fund your business but discern whether going out on your own is even feasible.
Business owners run into numerous costs, but 10 of the most basic ones to consider are these:
1. Market research
Before launching your new venture, you need to know whether there's a need in the marketplace for what you can offer. Micro-business owners may be able to do this from personal experience. For example, someone who works for a busy house-painting service may realize they could go out on their own and absorb some of that excess demand. But other entrepreneurs may need to hire an outside firm to conduct a market research report, which can cost several thousand dollars.
2. Incorporation and licensure fees
If you formally organize your business as its own entity—such as a Limited Liability Corporation, S-Corporation, sole proprietorship or partnership—you'll need to file documents with your state or local government. The initial filing fee
3. Equipment and supplies
Business startup costs in this area can diverge wildly. If you're operating in an industry where all you need is a reliable laptop and a phone, you may only have to shell out a few hundred dollars to be up and running. Other businesses may require large, complex machinery that can run in excess of $100,000. Part of your market research should include talking to industry experts and suppliers to get a realistic sense of what those equipment and supply costs will be, including a ramp up timeline. Consider starting with necessities and increase as the business grows.
No matter how big your organization is, you'll likely need several software programs to get up and running—for building a website, handling accounts, storing customer information securely and managing marketing campaigns, among other things. If your business will process online transactions, you'll need software for that, too. You'll want to investigate ahead of time what the total cost will be to purchase or subscribe to the various technology products you'll need. If possible, try to spread the charges over different months so the annual renewal charges will not always happen at the same time.
When you're a new business owner, the hope is that future revenue will be enough to cover ongoing expenses, including what may be your biggest one: payroll. However, you'll need a cash cushion to pay your employees' salaries for the first few weeks, if not months. You also need to account for any benefits, including health care premiums, that you're going to offer. The
This is another category where the cost range can vary considerably, depending on the nature of your business. If you're primarily in business to provide a service, you may not have to worry about carrying inventory at all. If you're in the retail segment, however, the cost of the products on your website or store shelves is probably going to be one of your largest line items. A key part of business planning is having a detailed forecast of how much inventory you'll need from the start.
For some businesses, all you need is the corner of your living room to run a successful business. But if you're opening a storefront or need an office where you'll regularly meet clients, you'll need access to commercial space. Even if you're leasing, it's important to factor in the cost of the first few months of rent as you scale up your business. Certainly, where you live and the size of the space heavily influence the total outlay. A small office unit in a low-cost part of the country may cost a few hundred dollars a month, but that same footprint in a premier urban development may be several thousand.
8. Office setup
Obtaining a commercial space is one thing, but making it conducive to your business needs is another. If you're setting up an office, keep in mind that a desk and chair set for each employee can range from around $700 for more basic needs to a few thousand dollars. Cubicles typically start at roughly $500 and go up from there. If your business is a store or restaurant, you'll need to price out the cost of all the furnishings you'll need, from shelving to booths.
9. Marketing expenses
Unless your professional reputation proceeds you, building awareness of your new company is a must. This could include everything from public relations campaigns to advertisements in a local newspaper or trade magazine to pay-per-click campaigns. The average small business using
10. Business insurance
From the start, owners need to think out how their business would weather a large, unexpected expense. Depending on the type of business you operate, for example, you may need general liability insurance, worker's compensation insurance and commercial property insurance that covers the cost of damage to your company's physical assets.
You also might consider getting
Additional coverage to consider, whether at the time of the startup or after the business grows, depends on the individual owner/s, type of business and risk tolerance. Consider the following:
- Liability coverage
- Professional liability
- Product liability
- Automobile liability
- Buy/sell insurance
- Life insurance to cover business loans
- Business overhead insurance
- Group benefits (health, life, disability, dental, health savings account, flexible spending accounts)
Calculating the startup costs for your business
With all of the potential line items involved, answering the question "How much does it cost to start a business?" isn't always straightforward. But some online tools can help you add up your particular details.
The Small Business Administration's
Potential tax advantages for startups
While getting a business off the ground is exciting, the total cost of financing a new venture also can be a major stressor. The IRS does provide some tax incentives and advantages that can help you recover a portion of what you paid to get your business going.*
For tangible assets like machinery and furniture, businesses typically depreciate the cost over the item's useful life. That means you may be able to deduct a portion of the cost each year, up to allowable limits, until the item is no longer in service. Entrepreneurs also may be able to use another option called
In addition to durable goods, you also may be able to write off ongoing expenses such as employee salaries and internet fees as well as assets that last less than a year, like office supplies. You're also allowed to take a
Protecting your financial future
Striking out on your own can bring a tremendous amount of personal satisfaction and significant financial rewards. But starting a small business isn't without risks, either.
If you're considering a startup, a