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How Much Does it Cost to Start a Business
Average start-up costs for small businesses vary widely based on your business model, location, and industry. While there is no single amount that applies to every business, understanding the most common startup costs can at least help you make an accurate calculation for your situation. Here’s what you should know about ongoing business expenses and one-time costs that come with starting a business.
How Much Money on Average to Start a Business?
On average, the costs associated with starting a business and the first year of operation typically range from $30,000 to $40,000. However, it is feasible to launch a business with initial investments as low as $0, $100, or $1,000, and even up to millions of dollars. For instance, an online business that doesn’t require inventory may only need a few hundred dollars for a website and marketing efforts, while a brick-and-mortar establishment could involve expenses in the hundreds of thousands for a location, furnishings, and equipment. Additionally, some businesses face variable costs, such as products and staffing, which can increase as sales grow.
Once you calculate the startup costs for your specific business, you may apply for startup funding or Small Business Administration loans. Financing often helps businesses cover costs incurred before revenue starts. The key is to begin saving to start a business early.
Can You Start Up a Business with No Money?
Starting a new business with no money is indeed feasible, but it largely depends on your particular business idea and niche. You might need to modify your approach until you begin to generate income. There are numerous resources available that provide valuable insights on how to start a business from home with no money.
For example, if you want to start an online business as a life coach, build your brand on Facebook or Instagram first. Then, once you start earning money from clients, build a website and start advertising.
Small Business Startup Costs to Consider
The initial costs for small businesses can differ significantly. For instance, you might explore businesses to start with $1K, but this option isn’t suitable for everyone. Some expenses are fixed and relatively easy to anticipate, while others can fluctuate considerably. Although not all of these costs may be relevant to your particular concept or sector, here are some typical expenses that entrepreneurs should keep in mind when considering how much it costs to start a business.
Incorporation
Incorporation involves setting up a business structure and filing all the necessary legal paperwork with your state and local government. You can hire a corporate lawyer or file paperwork yourself. Fees vary by location but are often just a few hundred dollars.
Website
A website makes your business look legitimate and gets your products or professional services in front of potential buyers. There are free website builders, but custom domains and advanced features can cost tens to hundreds of dollars.
Advertising
Advertising and marketing costs are considered variable expenses since they change based on your company’s budget and goals. It’s not absolutely necessary to advertise upfront. But it can help you reach customers who otherwise wouldn’t know about your offerings. You can set your own budget on platforms like Facebook and Google, starting at just a few dollars.
Inventory
Product expenses vary based on how much inventory you need to purchase upfront and the cost of your items. In addition to the actual purchase, factor in shipping costs and storage space. There are often bulk discounts, but purchasing too much inventory also comes with more location or storage expenses. Budget anywhere from a few hundred to hundreds of thousands for this category, depending on the cost of your goods or supplies.
Business Insurance
General liability insurance protects businesses from legal expenses incurred due to damages or injuries incurred on your location or as a result of products or services. Some businesses may also benefit from property insurance, errors and omissions, and auto or business policies. Typical expenses for this startup cost start at a few hundred dollars per year.
Software
Many businesses use accounting software and similar tools to manage daily operations. These programs may have a small monthly fee or a one-time purchase cost. The budget tens to hundreds of dollars annually is used for this expense.
Business License
A business license is a permit required by many states or counties. Small business owners spend between $50 and a few hundred on this expense. If you already have an attorney, they may file it for you, so just roll it into your legal fees.
Physical Location
Brick and mortar stores or companies with a physical office will need to factor in rent or mortgage expenses. Don’t forget utilities as well. Depending on size and location, this can cost a couple thousand per month or more.
Equipment
Equipment costs can differ significantly depending on the business type. Companies requiring heavy manufacturing or construction machinery should budget anywhere from thousands to hundreds of thousands of dollars, whereas businesses selling handmade products that only need small tools, such as vacuum sealers or label makers, might only need to spend between $20 and $50.
Furniture
If you have a retail or office space, factor in furnishings like chairs, desks, and cabinets. Depending on the size and type of furniture needed, this can cost a few hundred dollars to several thousand.
Staffing
If you need help running your business, recruiting and payroll can represent major expenses. The amount depends on the size of your team, their skills and experience, how many hours they work, and your location. Generally, you can expect to spend thousands of dollars a month for each employee.
Taxes
Taxes accrue based on how much you earn. But it’s important to set money aside so you don’t get hit with a huge bill at the end of the year. Federal corporate taxes are 21 percent. And factor in state taxes as well.
How Small Business Owners Can Save on Costs
It can be tough for a business owner to cover all the expenses above without help. You can begin with inexpensive businesses to start and invest more as you make more money. But, here are some methods that may help in the early days.
- Apply for small business loans: Seek out SBA-backed loans, as they typically offer competitive interest rates and are more accessible for new entrepreneurs to obtain.
- Obtain a business credit card: Utilize this card solely for expenses that you can pay off in the following month. This strategy can help you manage cash flow gaps while also building your credit score for future purchases that may necessitate a credit report.
- Start online: Businesses without a dedicated location are much less expensive and there are more trending business ideas you can start with. If possible, start online to earn revenue before buying or leasing property.
- Choose an affordable location: Thriving cities often have higher rents and expenses. Opt for a place that is more remote from the hustle and bustle to save money.
- Barter: If you need professional services like legal help, contact other small businesses to swap services. Perhaps you can build them a website in exchange for help with incorporation.
Figure Out How Much Money to Start a Business with Our Startup Calculator
Now that you know the average startup costs for a small business, it’s time to apply these to your own situation. Our small business startup calculator can help you accurately calculate startup costs by determining which are most relevant to you. Include both one-time purchases and ongoing expenses to get a full picture.
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This article, “How Much Does it Cost to Start a Business” was first published on Small Business Trends