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How much does it cost to start a business? Our guide breaks down the expenses you need to keep in mind for your calculations.
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As an aspiring business owner, you’re going to need money. But how much money do you need to start a business?
While this answer varies depending on the industry you plan to enter, we can offer you some examples and give you a better idea of how much it costs to start a business.
Table of Contents
According to dropshipping directory Oberlo, home-based small businesses that require little to no equipment can cost less than $1,000 to start.
Opening a business that requires more equipment and even dedicated office space, such as starting a coffee shop, could cost upwards of $100,000 to get off the ground.
According to Small Business Trends, the average cost falls between a $30,000 and $40,000 initial startup investment.
There aren’t a lot of official figures on starting a business because situations and industries vary so greatly, but you can check out the Small Business Administration’s (SBA) Startup Cost Calculator after you’ve read our article to get a more exact estimate.
| Startup Expense | Estimated Cost |
|---|---|
| Business Licenses & Permits | $200 |
| Business Insurance | $1,000 (annually) |
| Equipment & Supplies | $10,000 |
| Inventory | $1,500 |
| Office Space & Utilities | $5,000 initially, then $2,000 monthly |
| Employees | $8,000 (monthly) |
| Marketing | $700 initially, then $200 monthly |
| Business Software | $200 (monthly) |
| Professional Services (legal services) | $600 |
| Misc. Other | $1,000 |
| Total estimated cost: $28,200 | |
We’ll break down some of these costs below.
The SBA has a very useful startup cost worksheet that outlines common business startup costs with sample figures that you can personalize to calculate the true cost of starting your business. Simply enter the estimated cost for each category (rent, utilities, inventory, employees, etc.), and you’ll be able to get a rough estimate of how much money you might need for your initial investment.
When making your one-page business plan, the absolute first step you must take when starting a business, you’ll need to make a sales forecast. This will be an estimate of how much you’ll sell in the first 6-12 months of opening your business. An idea of future revenue will help you determine what you can spend on expenses like payroll and inventory.
If the total seems too high, look for areas where you can cut costs. Could you operate out of your home to start? Could you subcontract workers instead of hiring permanent employees? Could you use dropshipping to deliver goods to customers?
Once you have a good idea of how much startup capital you might need for your first 6-12 months in business, you can decide how you will finance your venture.
Startup funding can be difficult to get from a traditional bank, especially if you don’t have any significant assets or previous experience owning a business. However, that doesn’t mean you don’t have any options.
Online technology has actually made it a lot easier to find small business funding. Here are some options you might try to finance your business.
If you’re feeling overwhelmed with the initial startup investment, it might help you to know that if your startup costs are $50,000 or less, you can write off up to $10,000 of those costs on your taxes.
Business loan interest is, in fact, a deductible expense included in this category.
This applies to the year that you start the business and includes up to $5,000 in business startup costs and $5,000 in organizational expenses (legal fees, state incorporation fees, etc.).
If your startup costs exceed $50,000, your tax-deductible expenses will be reduced by that dollar amount. If your startup costs are more than $55,000, you are unfortunately not eligible for this deduction.
Certain expenses are not tax deductible. Some examples include:
These may be deductible in a different category, like amortization.
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