14 Business Startup Costs Business Owners Need to Know

Updated on March 18, 2020
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Deciding to start a business is an exciting moment, but for new entrepreneurs, that excitement is often accompanied by uncertainty, anxiety, and doubt. Many of these feelings stem from financial worries: Not only do you have to worry about whether your business will be profitable in the long term, but you also have to think about business startup costs.

You’ve probably wondered “how much does it cost to start a business?” Business startup costs can run pretty high—a study from the Kauffman Foundations shows the average cost to be around $30,000, and costs tend to increase each year. 

The good news is that certain types of business, such as micro businesses and home-based businesses, can be far less expensive to start. Here, we’ve put together a list of 14 different types of business startup costs you’ll need to consider when launching your company

How to Calculate the Cost of Starting a Business

If this is your first business, estimating start up costs is uncharted terrain for you—and that can be completely terrifying. Luckily, there are lots of resources out there for brand-new business owners.

The best way to estimate your business startup costs is by drafting a business plan. One of the main components of a business plan is the financial projections section. In that section, you estimate revenue, profit, and expenses for the next three to five years. 

There are other resources to estimate your finances as well, such as the SBA’s startup costs worksheet and Gusto’s startup budget spreadsheet. Use these templates to estimate the total amount of funds you’ll need to fulfill your initial expenses. That way, you’ll have a better understanding of how much capital you’ll need to raise when you seek startup funding.  

Keep in mind that many of these business startup costs are recurring, so you’ll need to keep paying them over and over again, either on a monthly, quarterly, or annual basis—think rent, office supplies, and payroll. Others, like the incorporation fee or office furniture, are one-time costs.

When calculating your business startup costs, a good rule of thumb is to be able to cover six months’ worth of expenses up front. So don’t count on your business’s revenue to start easing your costs until at least after that early period is over. You’ll want a cushion while you get your feet under you and work on attracting business.

Incorporation Fees
Under $300
Office Space
$100-$1,000 per employee per month
17-25% of total budget
0-10% of total budget
About $40 per month
Office Furniture and Supplies
10% of total budget
About $2 per square foot of total office space
25-50% of total budget
Professional Consultants
$1,000-$5,000 per year
An average of $1,200 per year
Variable, but 21% corporate tax rate

14 Business Startup Costs to Plan For

Although this is a typical list of business startup costs, your exact startup expenses depend entirely upon your specific business and industry.

Here are some typical business startup costs to plan for:

1. Equipment: $10,000 to $125,000

Almost every business will need to immediately finance equipment. Equipment costs for startups can range anywhere from $10,000 to $125,000, depending on the industry and size of the company. 

For example, if you’re starting your own moving company or shipping, you’ll need to finance a truck. If you’re opening a restaurant, you’ll need commercial-grade ovens, stoves, dishware, and cooking utensils. If you own a hair salon, you’ll need styling chairs. If you own essentially any type of business in any industry, you’ll need computers.

Of course, these costs range according to industry, as well as the size of your business—if you have multiple employees, then they’ll all need certain types of individual equipment as well.

2. Incorporation Fees: Under $300

One of your first to-dos when setting up a business is to choose a business entity, which has important tax, legal, and financial implications.

If you decide to incorporate your business or register your business as a limited liability company, making it a separate legal entity, you’ll need to file articles of incorporation with your state. That comes with a price tag ranging from as low as $50 to as high as $725 depending on the state. However, the fee is under $300 in the majority of states. 

Even if you’re not incorporating, you’ll probably need to apply for federal or state licensing or permits. These specifics depend on the type of business you’re operating and where you live. Some businesses, like those in the agriculture or aviation sectors, require federal licensing. Service-based industries need to have professional licenses. Businesses based around sales will need sales tax licenses or permits.

3. Office Space: $100 to $1,000 per employee per month

Renting an office or store space will be a sizeable portion of your fixed costs, whether you rent or buy. As a guideline, plan on spending somewhere between $100 per employee per month, up to $1,000 per employee per month, says David Bakke, depending upon the type of space you have.

To mitigate those costs, if at all possible, you should work from home in the beginning, or look into coworking spaces, which are ideal for very small businesses. And if you own a service-based business, you can travel directly to clients to decrease the overhead cost of your own space.

4. Inventory: 17% to 25% of your total budget

If your business provides a service, inventory startup costs might not apply to you. But if you’re in the retail, wholesale, manufacturing, or distribution sector, chances are high that you’re in need of inventory to sell—STAT.

Knowing how much inventory to carry can be tricky: If you have too much inventory, you risk spoilage or damage, but if you have too little, you could lose customers who aren’t willing or able to wait for an item to come back in stock. This is especially true for seasonal businesses whose inventory might vary drastically vary year-round.

You should allocate between 17% to 25% of your budget to inventory, depending on your industry. When you’re first starting out, though, you might want to err on the higher end of that scale. “You don’t want to skimp on inventory in the beginning,” Bakke says, “because you never want to turn down a sale for a customer because you don’t have product.”

5. Marketing: Below 10% of your total budget (even 0%!)

Marketing materials might include physical materials, like signs, banners, and business cards. You might also consider paid advertisements, as well as more creative options, like videos and giveaways that might require you to hire a consultant or a video producer.

Courtney Barbee, COO at The Bookkeeper, recommends keeping overall marketing costs to a minimum. Specifically, strive to keep your ad materials under 10% of your budget.

The good news? You can do the bulk of your small business marketing, if not all of it, for free. Thanks to social media and other online marketing strategies, advertising costs are often much lower for small businesses just starting out now than they would have been 20 years ago.

6. Website: Around $40 per month

It’s important that you have a business website that looks professional, is easy to use, and provides customers with necessary information about your services, products, hours, and contact information.

Thanks to services like Wix, Squarespace, and Weebly, making a website is easy and cost-effective. These content management systems (CMS) are sometimes free, but their premium plans will come at a monthly or yearly subscription cost:

  • Wix: $13 to $39 per month for a premium plan
  • Squarespace: $12 to $18 per month billed annually, or $26 billed month to month
  • Weebly: $5 to $25 per month

Wix and Weebly also offer very basic, free website builders. If you’re fairly tech-savvy, it’s easy to build a website through one of these services, no coding background required. But if you’re not very familiar with computers, you may want to hire someone to build the website—which, of course, is an additional cost (although it might become a worthwhile investment).

7. Office Furniture and Supplies: 10% of your total budget

Office furniture and supplies add up fast. If you’re operating in a traditional 9-5 office environment, then every employee will need a desk, a chair, a computer, and a phone. Add in a microwave, water cooler, filing cabinets, and bookshelves, supplies like paper and printer ink, and the cost of any computer software you might be using, like your accounting software, and you’ll reach a hefty sum.

Again, that sum varies depending on the tools your business needs to operate, and the number of employees you need to outfit. Nate Masterson, the marketing manager at Maple Holistics, estimates that the total cost for office furniture and supplies would be around $5,000.

On the other hand, Bakke takes a more conservative approach: He advises saving about $80 per month per employee for office supplies, and around $500 per employee for office furniture. In all, though, Masterson advises keeping your furniture and supply costs to around 10% of your budget.

8. Utilities: Around $2 per square foot of office space

In addition to the fixed costs of rent and a down payment, you’ll be responsible for paying the electric, gas, water, internet, and phone bills for your office space.

Bakke says you can estimate spending roughly $2 per square foot of your total office space for utilities, but know that HVAC units (if you need to install one) will come at an extra cost. Typically, individual HVAC units run for a couple thousand dollars, not including installation fees and upkeep.

9. Payroll: 25%-50% of your total budget

You need to pay your employees, even in the beginning when you’re not bringing in much revenue—and that includes yourself, too! Remember that payroll includes benefits as well as all forms of compensation: bonuses, stipends, commissions, and overtime pay. Also keep in mind that your staff might grow over the course of the year, as your business starts to pick up.

Of course, payroll costs vary dramatically across startups. Bakke suggests keeping payroll costs around 25% of your total budget, but the exact numbers are contingent upon your industry, as well as the size of your company. If you use a payroll service, then you should factor in that monthly cost as well.

A conservative payroll budget could work if you’re a sole proprietor, or if you’re running a small enterprise and use mostly 1099 contractors—and either is a pretty likely scenario for most startups.

But if you’re paying for regular wages and benefits for a team of W2 workers, you should allow for much more space in your budget for payroll costs. Some of our experts, including Barbee, say that payroll costs can comprise up to 50% of your total budget.

10. Professional Consultants: Between $1,000 and $5,000 per year

It’s tempting to tell yourself that you can do everything all by yourself and that you’re able to get by without hiring any professionals like bookkeepers, certified public accountants, or attorneys. But in many cases, this can be a really, really bad idea.

For example, certified public accountants (CPAs) are extremely helpful when setting up your business: They can walk you through all the different legal structures, help you figure out which benefit program to implement for your employees, and make sure you’re complying with state and federal regulations. When tax season rolls around, they’ll prepare your tax returns and help you save on your taxes.

That’s not to say that you need to hire a full-time accountant. But even after they help you set up your business, it’s a good idea to consult with your accountant on a monthly, quarterly, and/or annual basis to review your financial statements, and for general financial guidance and advice.

You don’t need to hire an in-house attorney, either, but expert legal advice can save you from making major legal mistakes like failing to trademark your logo or developing relationships with vendors without a contract in place.

Every CPA and lawyer charges different hourly rates. Rates and additional fees vary depending on the number and level of difficulty involved in the tasks you need outsourced, the time is takes to complete your projects, and your consultant’s tenure. However, you can mitigate these costs by taking on some basic tasks yourself, only outsourcing the most complicated projects. There are even some options to get free business legal advice.

And with the help of good business accounting software, you can take care of some bookkeeping yourself, such as processing and managing payroll, creating and tracking invoices, and managing your business bank account.    

According to SCORE, all told, the majority of small business owners spend between $1,000 and $5,000 per year on administration tasks, including accounting and legal fees. But as a startup—and by taking advantage of those cost-cutting tactics we mentioned—you’ll probably err on the lower end of that spectrum.

11. Insurance: Average of $1,200 per year

Just like you protect your health, your home, and your car with insurance, your business needs protection, too. There are many different kinds of business insurance, from protection from angry customers that decide to sue, to disaster insurance for a catastrophic kitchen fire that shuts down your restaurant for weeks.

The type of insurance your startup needs is entirely dependent on your business, industry, number of employees, and other risk factors, so costs are variable. For instance, a sole proprietor running an online business has far fewer insurance requirements than a construction company with several employees does.

But here’s some context: In a recent study, Insureon found that the average small business spends about $1,281 per year on all types of insurance. Bakke also says that, typically, startup insurance costs can range anywhere from $500 to $3,000 per year.

Again, every startup requires different types of insurance. However, there are a few essential forms of insurance you should look into to protect yourself, and policy costs vary according to several different factors:

      • General Liability Insurance: About $400 to $800 per year. Your industry’s riskiness will be the biggest factor influencing the cost of your policy.
      • Commercial Property Insurance: Anywhere from $300-$2,500+, depending on the value of the property and its assets, and a risk factor dependent upon the nature of the business and the location of the property.
      • Workers’ Compensation Insurance: Approximately $0.75 to $2.74 per $100 of payroll, depending on the business’s size, location, payroll, and risk.
      • Errors and Omissions Insurance: Approximately $2,000-$5,000 per year, depending on your business’s size, industry, location, revenue, legal history, and the quality of your contracts and employee training procedures.

12. Taxes: Variable, but 21% corporate tax rate

When you’re planning your budget, it’s nearly impossible to assign a dollar amount or percentage of your budget to allocate toward business taxes—the amount you pay depends on your revenue (which, as you know, is also impossible to predict), your deductible expenses, and your business entity.

Under current federal law, corporations pay a flat 21% corporate income tax. For pass-through entities, business income and losses pass through to the owners’ personal tax returns. Pass-through entities can claim a 20% deduction on income before paying their business taxes.

But know that you can often save money by working with a CPA, since they’ll be able to figure out what exactly you can deduct so that you pay as little as possible. Working with a professional accountant can save you time, too, which is money in and of itself.

13. Travel: Variable

Not every new entrepreneur needs to factor travel into their business startup costs. But if you have a consulting business or you visit your customers directly, you will be traveling a lot, so you need to remember how quickly those costs add up. Factor in the price of airfare, gas money, and train tickets, in addition to accommodation and food costs for your employees, if relevant.

Try to keep total travel costs to an absolute minimum, so you can allocate your revenue toward bigger expenses, like payroll and rent. And to make some returns on all that time on the road or in the air, consider using a travel business credit card, which can earn you points and miles for every dollar you spend. If you do have to travel frequently, keep the non-essentials like business class tickets to a minimum.

14. Shipping: Variable

Service-based businesses can probably stop reading here. But if you’re in retail, you might be shipping products to customers—if so, you’ll need to factor shipping into your startup costs, including packing materials and postage. Depending on what you’re sending, these costs can reach into the thousands of dollars.

However, services like Stamps.com considerably ease the burden of shipping costs on small business owners. With this service in particular, you can print out their own postage without having to buy a costly postage meter. Bakke also recommends ordering free shipping boxes from your shipping service of choice.

business startup costs

Stressed About Covering Startup Costs? Hunt for Bargains—and Look for Startup Financing

All told, the costs of starting a business can certainly add up, and many of these costs are nonnegotiable. But do your research before you splurge on purchases, and recognize that there are ways to take care of some of these startup costs on the cheap.

Using software like QuickBooks instead of a professional bookkeeper, working from home or in a coworking space instead of leasing an office, and doing the majority of your marketing through social media will all help to make your budget a little more manageable.

That said, there are some costs that you shouldn’t skimp on. Don’t buy poor-quality equipment just because it’s cheaper—you’ll lose time and money in the long run making repairs and eventually buying new equipment. Hire a legal or accounting expert if you’re in over your head. And make sure your website and advertising campaigns are professional-looking and effective.

Secure Funding to Cover the Cost of Starting a Business

If you’ve put together an estimate of your business startup costs and are feeling panicked, know that there are plenty of resources to help you find startup financing.

It’s likely that your initial funding will come from a combination of debt and equity financing. But keep in mind that debt financing options—aka, small business loans—are fairly limited for brand-new businesses. Most lenders only feel comfortable offering loans to established businesses with hard evidence of profitability, as well as healthy credit, which most startups simply don’t have yet.

There are some lenders who work with startup business owners, so don’t complete rule it out if you think it’s your best option. Check out more information on how to get a loan to start a business if you think debt financing is the right move for you.

Don’t Forget About Business Credit Cards!

Once you’ve established a legal entity for your business, you can’t go wrong applying for a business credit card.

These seemingly magical pieces of plastic are much easier to apply for, and qualify for, traditional business loans. Plus, they’ll give you access to a higher credit limit than your personal card can, keep your personal and business finances separate, and help you establish an all-important business credit right off the bat.

Just make absolutely sure you’re not maxing out your credit card, or charging more than you can repay. Both can do serious damage to your credit score, which might hurt your chances at securing a small business loan down the line.


The Bottom Line on Business Startup Costs

Planning your business budget is one of the most stressful parts of entrepreneurship, we know. But being realistic about estimating your business startup costs—and how much money you may need to borrow right away—will go a long way toward getting your company up and running.

Contributor at Fundera

Gretchen Schmid

Gretchen Schmid is a freelance writer who previously wrote about business, technology, and healthcare for Longneck & Thunderfoot. She also writes for Publishers Weekly, mental_floss, Dance Spirit magazine, and the Brooklyn Rail.
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