13 Startup Costs Business Owners Should Know About 

Starting your own business is very exciting but can be intimidating if it is something you have never done. There are many factors in starting a small business that should be considered before jumping into it, such as cost calculation, profitability, funding, inventory, and many more.  

It is very important to figure out the answer to the question — How much money do I need to start my new business? The initial investment for your business can end up being quite large. If you are starting big then you can expect to spend about $30,000. For instance, if you are opening a storage facility and need to rent or buy a location and hire employees, your startup cost will be significant. On the other hand, if you are a small business, such as a home-based nail technician, you will have startup costs, but they will be much lower. 

Regardless of the type of business you are running, it will be important to consider different business startup costs prior to officially opening. Continue to read this article if you are interested in learning more about these business startup costs.

How Do I Calculate the Cost of Starting a Business?

Creating a business plan is the best way to get an estimation of what your business startup costs will be. Your business plan should include an estimate of your revenue, profit, and business expenses for the next three to five years. 

It’s important to remember that business expenses will remain consistent throughout your journey as an entrepreneur. When running a business a smart rule to follow is to always have enough money to cover 6 months’ worth of expenses.  In this regard, you will always have funding in case of emergencies that are expected to happen at one point or another. It is likely you won’t make a profit during the early stages of your new business. Ensure that you have funds saved up to avoid any problems and debt in the future. 

There are also additional resources that allow you to visually compare and estimate your startup costs. Websites like SBA.gov provide easy-to-use templates to help you calculate startup costs. Otherwise, continue to read this article for a complete breakdown of startup costs for running your own business. We will cover not only annual cost considerations but also quarterly and monthly expenses such as rent, payroll, office supplies, etc. 

13 Business Startup Costs to Consider

When starting up your own business, it would be beneficial to include the following in your business plan:

    • Equipment
    • Incorporation fees
    • Space and rent 
    • Inventory 
    • Marketing
    • Website 
    • Furniture and supplies
    • Utilities
    • Payroll
    • Insurance 
    • Taxes
    • Travel 
    • Shipping

The above-mentioned list is startup costs for the general small business owner. Costs will vary depending on the type of small business you are running. If you are home-based, your business will most likely require the minimum to start up, like equipment, website, travel, and shipping. 

Equipment

If your business requires some type of space to run, you will be spending on equipment. The amount spent on equipment will vary depending on the type of business and its needs. However, the startup costs for equipment typically range between $10,000-125,000. 

If you are opening a restaurant, you will need to purchase ovens, stoves, utensils, dishes, soda machines, etc. Alternatively, a graphic designer may only need a laptop, microphone, and software. 

Incorporation Fees

Incorporation fees are fees that businesses have to pay once they become active. The fee will vary depending on the type of business and the state the business will be running in. Additionally, you may need to file articles of incorporation or articles of organization and apply for federal or state licensing or permits. Please check with your state about fees and filing. Incorporation fees typically start at $50 and can go as high as $730. However, many states require a $300 fee. 

Space

Renting a space or office will likely be the most expensive cost you run into when starting a business, regardless of if you rent or buy. The cost of rent will depend on the area your office is in and if employees are paying rent. For example, if you are opening up a salon, employees will most likely pay rent. On the other hand, if you are a hairdresser that is paying the salon rent, it will be on the lower side when it comes to costs. You can expect rent to range anywhere from $100-$3,000. 

Inventory

If you are running a business that involves wholesale, retail, manufacturing, distributing, etc. you will need to determine how inventory will be sold as soon as possible. This can be challenging because as a new business owner, you will not know how much inventory to carry, and when is a good time to restock. You don’t want to have too much inventory because it may be a loss, however, you don’t want to be in a situation where you don’t have enough and risk losing customers. 

Because inventory is so challenging to figure out, we recommend allocating between 17%-25% of your budget to inventory. Again, this will depend on the industry you are in as the market will play a huge role in it. When first starting a business, we recommend securing more inventory to test the waters and attract as many customers as possible as well as generate as much revenue as you can within the early stages of your business

Marketing

Many new business owners do not consider marketing when beginning their new venture. However, it’s important to consider it because you will quickly learn how useful it is, and how often you utilize it. Though you will utilize marketing strategies to spread brand awareness, you should keep marketing costs to a minimum. Fortunately, with the user of social media, this will not be an issue. 

There are many marketing materials such as signs, banners, and business cards. Additionally, there are paid ads, social media marketing, and website marketing. Marketing experts recommend keeping marketing costs under 10% of your budget. To begin marketing, start with social media, which is little to no cost, and expand your strategies when necessary. 

Website

When running a business, it would be helpful to create a website as this is the number one way customers and clients will find you. Your website should be user-friendly, informational, and professional. Some websites are costly, while others are free,  or cost efficient. Consider Wix, Squarespace, and Weebly which have plans that cost between $13-$40 per month. 

Furniture and Supplies

When first starting your business, you will start small when it comes to furniture and add to your collection as your business grows. Many businesses require desks, chairs, tables, computers, software, pens, printers, etc. The list goes on. The furniture and supplies you need will vary depending on your business and how many employees and clients are involved. To manage costs, we recommend keeping a budget for furniture and supplies and using only 10% of your total budget. 

Utilities

If you are renting a space for your business, you will also need to pay for utilities such as gas, internet, and water. This can be pricey depending on your location, but you can expect to pay $2-$3 per square foot.

Payroll

If you are a business that has employees, the most important task that needs to be done is payroll. Regardless of where your business financially stands, you need to pay your employees. If you aren’t paying your employees on time, your business will go downhill. Not only will you accumulate debt, but you will also lose employees and create a bad reputation for yourself and your business. Payroll consists of the following:

    • Net pay
    • Commission
    • Overtime pay
    • Bonuses
    • Paid time off

Payroll will cost you about 25-50% of your budget. Furthermore, you should be considering taxes and insurance.

Insurance 

Similar to a house and car, your business will need insurance for protection purposes. There are many different types of business insurance plans. The type of insurance will depend on the needs of your business, the actions of employees, and where your business is located. For example, a nail artist most likely won’t need to consider insurance options, but a construction company will. The average amount you can expect business insurance to cost is about $1,200 per year. Examples of business insurance are:

    • General liability insurance
    • Commercial property insurance 
    • Workers compensation insurance
    • Errors and omissions insurance

Taxes 

Of course, when running a business you need to pay taxes. When business planning and setting budgets, it can be confusing when trying to figure out how much your business taxes will be each year. This will depend on your revenue, deductible expenses, and business entity. However, corporations pay 21% corporate income tax. Though this is a varying factor of running a business, note a  21% tax rate to be on the safe side. 

Travel

Though not every business will need to travel for their business, we recommended considering it just in case another business opportunity arises and requires traveling. For instance, you may be starting an SEO business that does not require you to travel at all. You work from home but are introduced to an opportunity of a lifetime. You are invited to an SEO event where you will network and meet professionals that can significantly further your career. The only downfall is you need to pay for airfare. You don’t want to miss an opportunity like this. Ensure you do have room for traveling if it were to occur.

If you are a business that will be traveling often, do not underestimate how much you will be spending. Consider transportation, food, hotels, and employees who may need to travel alongside you as well. Consider looking into business credit cards that offer travel points and rewards. 

Shipping

If you are a retail operating business, you may need to ship your products to customers. This is another startup cost that may require shipping and packaging materials. This can quickly become costly, and both the location you are shipping out of and into will determine the cost of shipping. 

Overview 

Planning a budget and considering all of the startup costs for your new business can be overwhelming. It’s important to be realistic about costs and consider how much money you will need so you do not run into financial issues in the future. Overestimate the cost so there aren’t any surprises along the way. Additionally, save as much money as you can by getting a business credit card, or taking out a small business loan. Regardless of your decisions, once you commit, do not give up. Follow your business plan, consider your business budget, and watch your business grow. 

How to Write a Business Plan

Are you new to the business industry and have dreams of running your own business? Running a business can be challenging and frightening, especially if it is something you have never done before. Creating an effective business plan will allow you to execute your goals and smoothly run a successful business. If you are interested in how to write a business plan, grab a pen and paper and let’s get started. 

What is a Business Plan?

A business plan is a thorough outline of your business’s financial goals and expectations. It explains how you will reach these goals and expectations and all of the important actions that are necessary to get you and your business to the destination you have dreamed of. Your business plan should include specific details regarding your business’s goals, services, finances, and products. 

Why is a Business Plan Important?

A business plan is important because it provides you with a road map that can lead your business to success for many years. Essentially, it’s a guide to use as a resource throughout yout journey as a business owner. Additionally, it can be used as s reference for when investors or potential partners become interested in your business and want to get involved. 

 You don’t want to enter the business industry without a plan. While it’s not impossible to become successful without a business plan, the chances of becoming successful are higher when you have a business plan, and a roadmap to follow. When taking a road trip, you most likely have a destination in mind prior to leaving, and a plan to get from point A to point B. The same goes for starting a business. Here’s how to create a business plan that is effective and efficient. The steps will go as follows:

    1. Write an overview of your business
    2. Describe your business
    3. Determine your business goals 
    4. Describe what your business offers
    5. Do your market research 
    6. Outline your marketing plan 
    7. Perform a financial analysis 
    8. Consider money flow 
    9. Add critical information and considerations 

Write an Overview of Your Business

Ask yourself: Why am I opening up this business? Your answer should not revolve around the idea of making more money. Sure, it is nice to have an additional source of income, however, businesses do not thrive when this is the primary reason for starting a new business. You should have an increased interest or passion in the services or products you are offering. 

With this information, create an overview, or summary that best describes your business. Write your business overview like it is a piece that investors will be reading when deciding if your business is worth the risk or not. Include a mission statement, a description of your services and products, and a summary of how you expect to financially grow. You may find yourself revisiting this part of your business plan throughout the planning process.

Describe your Business

You have determined what your company stands for. Now, how can clients and customers reach you? Consider how businesses are displayed on Google and set up a Google My Business account. The following information should be included:

    • The registered name of your business
    • The address of your businesses location
    • The phone number of your business
    • The names of the owners and co-owners of your business 

When describing your business, you should take note of who has ownership of the company, what percent they own, and their position within the company. Additionally, you should write about the history of your business and how it is currently running, or where it currently stands in terms of business growth. 

Determine Your Business Goals 

Once you have confirmed your business’s information, and what it stands for, you can identify what your business goals are. This is also known as an objective statement. This is where you pinpoint your goals. What do you want to accomplish this month, year, and 2 years from now?  How will you reach these goals and what will you need?

For example, if you are opening a restaurant, answer the following questions:

    • What do I want to accomplish within the next two years?
    • How many customers will I need per day to reach my goals?
    • How will I financially reach these goals?
    • What are my monthly expenses?

The listed questions are just examples to help you determine specific, realistic goals. These allow you to reflect on how far you have come, and what more could be done to reach your goals. Additionally, they give you a timeline to execute your goals. 

Describe What Your Business Offers

Though you already know what your business offers, it’s important to write down the services and products your business has for future endeavors. You can quickly reflect on this part of the business plan when creating marketing campaigns, flyers, websites, blogs, and proposals. 

Here is what your business offer section of your business plan should include:

    • An explanation of your products or services
    • Why your products or services will benefit clients and customers
    • The type of customers and clients you typically serve – is your services and products suitable for anyone and everyone? (Age, gender, etc.)
    • The strategy you use for supplies and orders – Do you receive shipments once every 3 days? Do you have to pick up supplies?
    • The sales strategy you use – Do you need to hire people? How are you marketing your products or services?
    • The distribution strategy you use – Do you ship or deliver? Do you order products based on sales? 

There are many things to consider when describing your services, and how exactly you sell them to your customers.

Do Your Market Research 

Market research is crucial for business growth and allows you to determine what your business is doing well, what it is lacking, and how well it may perform in the future. Determine your competitors and what sets your business apart from theirs. If you can’t seem to find how you are different, explain how you can set your business apart from others. Additionally, if competitors are doing something well, take note of that and determine how you and your business can do better. Furthermore, it is important to consider the market, and how market changes will affect your business. 

Outline Your Marketing Plan 

Of course, a marketing plan is important for the growth of your business. How will you persuade customers to choose your business over others? There are hundreds of ways you can influence customers to choose your business, here are a few marketing ideas:

    • Creating an effective website
    • Social media marketing 
    • Offering discounts
    • Offering loyalty programs
    • Campaigns 

Marketing plans are very important so customers don’t forget about your business, and so your business is exposed to new customers. 

Perform a Financial Analysis 

Financial analysis can be intimidating, especially if you are new to the business game. Chances are, you will be spending more than you expected. Regardless of where you are at on your business journey, having a financial analysis is extremely important. Here are some financial components to track and record:

    • Rent and supplies
    • Business loans 
    • Employees
    • Products and services – how much you paid for them vs how much you are charging 
    • Net profit margin – the amount of revenue you will keep as net income
    • Current ratio – the measurement of your liquidity and if you can repay debts
    • Accounts receivable – how much you are collecting on receivables per year 

Consider Money Flow 

Money flow essentially determines if you will be able to maintain your business. It outlines if your business will make enough money to pay off business debt, and leave you with a return on investment. If you are a new business owner, carefully invest in your business and make decisions that will benefit the growth of your business. If you have had a business for over 3 years, use statistics from previous years to monitor money flow and how well your business is performing. 

Add Critical Information and Considerations 

Last but certainly not least, consider any information or key points that will affect your business in any way. This may be licensing, employee requirements, permits, receipts, business credit history, payment method, etc.

Recap

Easy is a word not many business owners use. Running a business is a huge commitment and requires a lot of time, consistency, and patience. With a thorough, detailed business plan, you should expect your business to run more smoothly. It’s easier to have a plan to reflect back on than to just wing it. Here is what your plan should entail:

    • A business overview 
    • Business description
    • Business goals 
    • Business offer description
    • Market research 
    • Marketing plan 
    • Financial analysis 
    • Money flow considerations 
    • Critical information and considerations 

While creating a business plan for your company, you will learn a lot about how running a business works, and the methods business owners utilize. Even if you end up taking a different business path, or your business doesn’t follow your business plan, you will learn a lot about the industry and resources that can help your business grow.