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How much would it cost to bring your small business idea to life? That’s the first question that comes to mind when you’re thinking about how to start your business. You need to be realistic when calculating business startup expenses, as every small cost eventually adds up. This includes business registration fees, employee wages, office space rent, and so on.
Small business startup costs depend on different factors, such as the business model, industry, and location. Every business has its own requirements, thus there’s no fixed amount when it comes to costs.
As a new business owner, familiarizing yourself with common startup costs will help you better estimate business expenditures specific to you. Here’s everything you need to know about the various costs to start a business.
How Much Money Do You Need to Start a Business on Average?
Startup expenses usually range between $30,000 to $40,000 in the first year, on average and depending on the business. That said, you can even launch your business with under $1,000 of initial investment, going all the way to millions of dollars.
For instance, a brick-and-mortar business might require a larger investment of thousands of dollars for furnishing, equipment, and acquiring a location. On the other hand, if you start an online business you might only need a few hundred dollars for marketing and creating a business website.
Both online and offline businesses might need staffing and products and have other variable costs. After you calculate your specific business’s startup expenses, you can apply for SBA loans, if you need additional help.
Knowing how to finance your business can significantly help you cover costs before your revenue starts. It helps to start saving early if you plan on launching your business soon.
12 Small Business Startup Costs to Consider
So how much does it cost to start a business? There is a massive difference in the upfront expenses when it comes to small businesses. Many costs vary based on the business, but some are fixed.
Some of the following costs may not apply to your specific industry, but you might need them in the future. Here are the common costs to start a business.
1. Business Registration Costs
You will need to register your business structure and take care of all the relevant legal paperwork with your local government and state. Here you can either file the paperwork by yourself or get help from a corporate lawyer or a business registration service. The fees depend on your location, but it’s just a few hundred dollars on average.
Read our article to learn more about the legal requirements for starting a business.
2. Advertising Expenses
Marketing and advertising costs depend on your business’s goals and budget, thus they’re variable expenses. You don’t have to advertise upfront, but it helps to reach potential customers who might not know about your business.
You can set a specific budget and utilize online platforms, such as Google Ads or social media, for only a small amount of money.
3. Business Insurance Costs
There are several types of insurance out there and you need to choose the ones that are right for your business. Businesses that opt for general liability insurance will stay safe from legal expenses, like customer injuries due to defective products or other damages.
Certain businesses can benefit from opting for property insurance, business or auto policies, and omissions and errors. Generally, the startup costs for business insurance start from a couple of hundred dollars a year.
4. Business License Costs
Acquiring a business license is required by several states in the US. Generally, small business owners tend to spend anywhere between $50 to a few hundred on a business license. If you have an attorney, then they can file it on your behalf, thus you can add this cost to your legal fees.
5. Inventory Costs
The cost of your products and how much inventory your business needs upfront will determine the expenses of your products. Don’t forget to factor in storage space and shipping costs.
Sometimes you will get a discount when you purchase in bulk, but buying too much inventory means extra storage and location expenses. Keep between hundreds to thousands of dollars for the inventory, depending on your supplies’ costs.
6. Software Costs
There are various tools and software that the majority of businesses use to handle daily operations. You might need to pay a one-time cost or a monthly fee. Keep aside hundreds of dollars for this expense on a yearly basis.
7. Equipment Expenses
The cost of the equipment widely depends on your business. If your business requires construction or manufacturing equipment, then you need to allocate thousands of dollars.
On the other hand, businesses that sell handmade products, for example, will need only small equipment, such as label makers or vacuum sealers. This would cost a little less than $100 based on the quality of the equipment.
8. Cost of a Physical Location
Physical businesses will need to think about mortgage expenses, rent, utilities, and related spending. This could cost hundreds of dollars per month, depending on your business’s location and size.
9. Furniture Expenses
If your business requires office space or retail, you will need to think about furnishing costs, such as desks, chairs, cabinets, and so on. The cost for these items can range from hundreds to thousands of dollars, depending on the type and size of furniture that’s required.
Your business’s earnings will determine how much taxes you have to pay. It’s recommended to set aside some money for this purpose in case you receive a long end-of-the-year bill. You will need to factor in federal corporate taxes and state taxes, where the former is 21%.
11. Staffing Costs
Payroll and recruiting greatly contribute to startup expenses. If your business needs help, you will have to hire some sort of staff to help run your business. The staffing costs depend on your employees’ experience, the number of hours they work, your business’s location, and the size of your team.
Typically, you can spend hundreds to thousands of dollars per employee every month.
12. Website Costs
Creating a website will help your business appear legitimate in front of customers. You can use free website builders online or pay for a custom domain, web hosting, and pay for web development. This can cost you anything from $50 to hundreds of dollars, depending on how you want to use your business website.
For instance, an ecommerce website will need more expenses for its maintenance as compared to a simpler business website. It will need better web hosting and would involve more complex web development as compared to a basic website with only a contact page and a blog.
How to Save on Costs as a Small Business Owner?
Starting a business costs a lot of money, depending on its size. As a new business owner, it can be hard for you to cover all expenses. Listed below are a couple of methods that can help you save on costs:
- Start your business online initially, if possible
- Acquire a business credit card
- Check out small business loans
- Pick an inexpensive location (read our article on the best states to start a business to learn more)
- Barter with other small businesses and swap services
How Much Do Businesses Spend in Their First Year?
In a survey conducted by Shopify, business owners were asked to share their business’s first-year records to see where they spend the most money on. The following categories were where most of their business’s costs went.
This included branding, printed materials, logos, advertisements, and so on. It will cost you more if you hire experts to establish a marketing strategy for your business.
This included costs like inventory, manufacturing, supplier, raw materials, patents, product testing, handling defective items, and so on
Labels, packaging, and other related costs come under this category. Extra shipping costs could include damaged items, returned products, shipping fees, and so on.
This includes salaries, perks, benefits, and so on. Business owners with employees spent $60,000 within the first year, while businesses with no employees spent $18,000 its first year.
This included accounting services and software, legal fees, incorporation fees, and so on.
For Offline Businesses
This included office space, gas, rent, table fees, and so on.
For Online Businesses
This included hosting and a domain name, website subscription, designer/developer, contract, and so on
Business owners recommend setting aside a certain amount of money for hidden expenses that might come up or in case of emergencies, such as a recession, a pandemic, and so on.
How Much Does It Cost to Start a Business – Conclusion
As a new business owner, you need to understand that every business comes with risk. The average expenses to start a business widely depend upon your specific business.
Learning about the most common business costs, having clear financial goals, and planning ahead will help you avoid making mistakes when it comes to smoothly running your business.