By Starting a business. The want-to-be entrepreneur’s daydream. Many founders have spent hours speculating the vision before finally making it happen. Freedom, flexibility, income—it’s all just a startup away.
However, many small business owners overlook one small (though crucial) detail: it takes money to make money.
Startups don’t grow on trees. You’ll need capital to get your business off the ground.
How much does it cost to start a business?
Ah, the answer we’d all like to know. Well, it depends who you ask.
Talk to a freelancer or consultant, and they’ll probably tell you it was free. While that’s perhaps not entirely accurate, it’s close to the truth. Yet, talk to a retail shop or eCommerce store owner, and they might yell a ball-park figure like $40,000.
Those are staggeringly different numbers, and you probably want something a bit more finite before you try to have a conversation with your spouse or local bank.
According to research, entrepreneurs needed an average of $65,000 to start a business in 2006. In 2015, that number dropped to just $13,000.
What happened?
The internet.
Suddenly, founders could launch businesses and start making money without renting office space, paying utilities, or hiring a team of employees. Crazy, right?
But do you need $13,000 to start your business? Maybe. Maybe not.
This article isn’t going to give you a concrete number. There are too many variables around industries, services, and geographic locations to give you an exact number.
However, it will walk you through the steps to help you create your personalized quote. Put on your imagination cap and get out your calculator—we’re about to start crunching some numbers.
How Much Does It Cost to Start a Business?
While you’re probably curious about how much it costs to get your business off the ground, you’re likely just as interested in how much it’ll cost to keep your business from crashing.
Many aspiring entrepreneurs assume they’ll make crazy amounts of money right away, so they don’t factor in the costs of doing business—they just calculate how much it’ll cost to open their doors.
You don’t want to just start a business—you want to build and grow a business.
To help you avoid a tragic fall, we’re going to help you calculate both.
We’ll talk about the expenses you can consider. You can decide whether that’s going to be a factor for you.
Then, we’ll talk about typical price ranges and what you can expect on the high and low ends—it’s up to you to be realistic and determine the right figure for yourself.
First, let’s start with the costs you’ll incur from the get-go. After that, we’ll talk about the costs of doing business and keeping your doors open.
Costs BEFORE You Do Business
These are expenses you’ll start paying before you even open your doors—before you start seeing a penny in return.
Some of these expenses (like furniture and branding) are one-time payments. Others (like rent, salaries, and software subscriptions) are ongoing, recurring expenses. These cost-calculations are in USD and info varies depending on the country you reside in.
Filing an LLC: $40 – $1,300 one-time cost
Your cost to form a limited liability company (LLC) will depend on the state you operate in. If you operate in Kentucky, it’ll cost you as little as $40 to register with the state. But if you live in Massachusetts, you’ll be paying a minimum of $500—and that’s just the filing fee. Some states, like California, have additional LLC-related fees that require you to spend as much as $800.
Want to skip the filing and paperwork and hire an agency or accountant to do it for you? LegalZoom charges $79 to form your LLC, while an accounting firm will charge around $425.
Branding: $0 – $5,000 one-time cost
A lot of different elements go into building a brand. You have themes, fonts, logos, taglines, colors, voice, and so many other elements. When building your brand from scratch, at a minimum, you’ll want a sophisticated logo. Let’s look through your pricing options:
- DIY: Build your own logo for free on a design platform like Canva.
- Fiverr: Hire a designer through a platform like Fiverr to design you a logo for anywhere from $25 to $500. Price doesn’t necessarily guarantee you better quality. Search through the designer portfolios to find a style that matches your taste.
- Freelancer: Look for a freelancer on LinkedIn, Upwork, or Google to design your logo. You can find freelancers with varying experience (from just out of school to years in the industry) for prices ranging from $300 to $3,000.
- Agency: An agency will enroll a team of experts to design your brand with more than just aesthetics in mind. They’ll likely take into account market research and competitor insights to design a logo that meets your style and business goals. Expect to pay anywhere from $1,000 to $5,000.
Licenses and Permits: $75 – $500 per year
You need to acquire different licenses and permits based on your industry, services, and geographic location.
For example, opening a restaurant in Seattle will require a state business license, county license, city license, food services permit, building health permit, liquor licenses, and more. However, opening a consulting business in Colorado would only require a local Sales and Use Tax License.
Industries like construction, finance, legal, education, insurance, healthcare, and real estate will need to obtain professional licensing and additional state and local permits.
On average, expect to pay anywhere from $75 to $500 to obtain all your necessary licensing.
Insurance: $65 – $200 per month
Insurance costs vary depending on your profession, services, and the number of employees. Most businesses will need to get general liability insurance, which costs an average of $65 per month.
Additional insurance policies like workers’ compensation, professional liability, business owner’s policy, and a commercial umbrella can each cost anywhere from $99 to $129 per month.
Adding health and life insurance to your plans can jack up the costs, but let’s assume you’re not hiring a staff of 30 out of the gate.
Software: $25 – $150 per month
Most businesses rely on software (in one form or another) to run their business. Here are software subscriptions you’ll want to consider and plan for in your budget:
- Website: Expect to pay $12 to $26 per month to purchase web hosting, a domain name, and basic security features.
- Payroll: Plan to pay an average of $39 per month (plus $6 to $12 per employee).
- Customer Relationship Management (CRM): Plan for an average of $12 to $40 per user per month.
- Accounting: You can find plenty of free bookkeeping options, but you’ll likely want a more sophisticated tool (like QuickBooks or FreshBooks). Anticipate paying $12 to $25 per month.
If you don’t consider yourself a DIY marketer, you’ll also want to consider the cost of hiring a freelance writer and developer. These will be helpful in building your website and making sure it comes off professional.
However, this isn’t an essential cost. You can build a fully functional website using templates and drag-and-drop tools. It won’t be the sexiest thing out there, but it’ll be affordable.
Equipment and Supplies: $1,000 to $125,000
You’ll likely need a variety of equipment and supplies to run your business. Even if you’re just running your business out of your garage, each employee is going to need a computer, mouse, and keyboard (at a minimum)
Want to start a podcasting business? You’re going to need a microphone and laptop. Thinking of teaching an online course? You’ll want a camera and adequate lighting. Opening a food truck? You need (of course) a truck, ovens, blenders, dishware, cooking utensils, and more.
All that to say: your equipment costs will vary significantly depending on your industry, services, and size of the location.
According to Kabbage, you could pay as much as $125,000 to buy essential equipment and supplies for your startup.
Need a Business Plan right now? We got the best for you here!
Costs of DOING Business
Whew. Talking about all this money can be exhausting. Take a break, drink some water, and settle down for round 2.
Don’t worry—the costs of opening your doors are often more expensive than keeping them open, and you’ll hopefully start making revenue soon to offset the expenses.
You got this!
Rent: Variable
If you’re running a freelancing or consulting business, you can run your entire business from your guest bedroom and spare the monthly rent expense. However, if you own a restaurant, retail space, or office, you’ll have to consider the cost of rent and utilities.
The price of office space all depends on the quality, location, supply, and demand. A modern space in a prime location will cost you a premium, especially if there are not many available options.
On average, office space in the US costs around $8 to $23 per square foot.
However, let’s consider you want an office space (outside your home), but you just want it for yourself—a private getaway to leave the house and separate your work and personal life.
Office space for personal use costs an average of $300 per month, but that number can go higher depending on the quality of the location, facilities included, size of the office, and the view. Or, you can use a co-working space for as little as $99 per month.
For utilities, expect to pay an average of $2.10 per square foot of office space. This takes into account gas, water, electricity, internet, and phone bills. Remember, it’s just an average. Do some local research by asking business owners or landlords in your area the utility costs of their building.
Employee Costs: $0 – $100K+ per employee per year
Employee costs have one of the largest possible ranges and largest expenses.
There’s nothing wrong with going on your own from the get-go—it’s definitely the cheaper way to go. However, you may want to consider hiring help, especially if you work in an industry that’s always on.
For example, if you own a restaurant or even a bakery, you’re going to have a hard time being a host, head chef, cashier, custodian, and marketer. Sure, it’s possible, but let’s run through some scenarios, so you know what your other options are.
Here are a few options to consider:
- Solo: Do it yourself and pay no additional costs.
- Basic Help: If you operate a retail shop or a restaurant, you’ll likely pay employees around $22,000 per year. Servers, hosts, and bussers will make most of their money off tips, but there are still hourly wages you’ll need to consider.
- Specialized Help: It’s going to cost you a fair amount to hire software developers, lawyers, accountants, or really anyone in a highly specialized field. Software developers make an average of $97,000 per year, while lawyers make an average of $122,000.
Beyond salaries, you also have to factor in the costs of payroll tax, benefits, perks, retirement savings, and the like. You’ll get to control a number of those costs, but the small business administration (SBA) suggests expecting each employee to cost 1.25 to 1.4 times their salary.
With that in mind, a $97,000 salaried developer actually costs around $121,000 to $136,000.
Taxes: 13.3% to 23.6% of income
Taxes are all determined by your revenue. The more you make, the more you owe—it’s a sad reality. However, in all seriousness, this is one of the biggest expenses that can trip founders up.
According to FreshBooks, you should expect to pay an average of 19.8% in taxes. If you’re a single owner, that number might be closer to 13.3%, while businesses with multiple owners will pay an average of 23.6%.
Don’t wait until April for that expense to sneak up and drag you down into the pit of despair. Plan for it. Budget for it. Save for it.
And above all—pay it. This isn’t a PSA from the IRS, but please remember to pay your business taxes. You don’t want to be hit with those fines.
Storage: $14 per pallet per month
Whether you’re selling products through Amazon FBA or your own website, storage will have a cost. Unless you plan on storing inventory and supplies in your linen closet, you’re going to need to plan on paying for storage.
If you’re renting an office space, that might come with adequate room to store your things, but it’s not something you can plan on.
Fulfillment businesses charge an average of $14 per pallet per month—and that doesn’t factor in the costs of the initial set up, receiving orders, or fulfilling orders.
Shipping: Variable
If you sell merchandise, a good deal (if not all) of your sales will come through online—and that means you’ll need to ship products to your customers.
Shipping isn’t cheap. You’ll need to factor in the costs of packaging materials and postage, especially if you’re sending custom-printed boxes.
The cost of shipping will vary based on:
- Dimensions
- Weight
- Location
- Destination
- Value of products
- Delivery speed
With all that said, it’s hard to make a general estimate of your shipping costs. Use a tool like USPS’s retail postage price calculator or FedEx’s rate finder to get a more accurate quote.
You can make your customers pay for the shipping by bumping up your prices, but that’s not always an option if your competitors offer free shipping and lower costs.
Marketing: 3-5% of projected gross revenue
Marketing budgets are all over the place. Some businesses throw money at marketing like it’s going out of style, while others sit back conservatively, desperately hoping customers will stumble upon their business.
The right answer is somewhere in the middle.
The SBA recommends startups spend 3% to 5% of projected gross revenue on marketing. This should be split between brand development costs and business promotion.
Brand development costs would be things like upgrading your website, building out your blog, or creating sales collateral. Business promotion would be the costs of things like email marketing campaigns, PPC ads, or event marketing.
