This is a classic question, and the answer can be anywhere from a few hundred dollars to millions. There’s no simple number because startup costs depend on things like your business type, size, industry, and location. Opening an online shop from home isn’t the same as building a restaurant or a manufacturing plant. It’s like comparing the cost of a backyard shed to a big house-they both count as buildings, but the price difference is huge!
Knowing what you might have to pay at the start is very important. It helps you plan how you’ll pay for things, make good choices, and give your business a strong start. If you don’t know what you’ll owe, moving forward can feel confusing. So, let’s break down what goes into starting a new business and what you need to plan for.
What affects the cost to start a business?
Main things that change startup costs
The cost to launch a business depends on a few big things. Most importantly, what kind of business are you starting? An online freelancing gig from your home needs a lot less money than a coffee shop on a busy street or a company that makes products in a factory. Your business idea shapes everything else.
How big you want your business to be also matters. If you want to keep things small, you won’t spend as much as someone planning a large store with lots of workers. Your decisions about inventory, equipment, employees, and advertising all add to the total. Even small choices can make a difference. It’s a good idea to count every detail.
Industry and business model
Every industry is different. A writer or designer can often start working with just a computer and an internet connection. But someone opening a retail store will need to pay for inventory, rent, fixtures, and checkout systems. Your business model also changes the costs-a dropshipping store has far lower inventory costs compared to a shop that keeps a lot of stock on hand. Online businesses usually skip rent, but pay for software or website tools instead.
Location and business structure
Your location makes a big difference. Rent in major cities is usually much higher than in small towns, and even businesses that work online can face costs like higher state taxes if their offices are in certain areas. How you set up your business legally matters, too. Setting up an LLC or corporation means paying filing fees, which can be anywhere from a few hundred to over a thousand dollars, depending on the state. More complex or heavily regulated companies may need legal advice that costs thousands.
Average startup costs for different businesses
Common spending ranges
It’s hard to give a single average, but here are some rough ideas:
- Simple online businesses: under $1,000 to start
- Home-based businesses: $2,000-$5,000
- Businesses with lots of equipment or space: tens of thousands to millions
For example, launching a restaurant or factory is much more expensive than offering consulting services from home. The money you’ll need is based mostly on your goals and what’s needed to get started in your field.
What the data says
- About two-thirds of small business owners pay their startup costs from their own or their family’s savings.
- Only about 16% take out a business loan at the start, but more do this as their company grows.
- In 2024, about 93% of small businesses said they had financial struggles, showing how important it is to plan for ongoing expenses and emergencies.
New trends in startup expenses
As technology improves, some costs have gone down while others are new. Cloud software is usually cheaper than buying big computer servers, but you’ll have to pay regular monthly fees. Artificial intelligence (AI) helps with tasks like customer service and data analysis, which can save on staff costs. Renting office space by the day or using freelancers for special projects can also help keep your spending lower and more flexible than hiring employees or signing long-term leases.
Types of startup costs
It helps to sort your costs so you can budget better.
One-time and recurring costs
- One-time costs: Things you buy or pay for once, like equipment, business setup fees, or website design.
- Recurring costs: Bills you pay again and again, every month or year. Examples are rent, utilities, salaries, insurance, and software subscriptions.
It’s a good idea to plan for at least a year of recurring costs. If you want a full picture, build a five-year plan.
Must-have and optional expenses
- Essential: These are expenses you can’t avoid if you want your business to run. For example, business licenses, taxes, equipment, and basic insurance.
- Discretionary: These are nice-to-have extras, like fancy office coffee, extra employee perks, or expensive branding when a cheaper logo would do for now.
Fixed and variable costs
- Fixed: These stay the same month to month, like rent, loan payments, or salaried staff.
- Variable: These rise and fall based on how much you sell or make. Think of inventory supplies, packaging, shipping, and transaction fees.
Main expenses when starting a business
| Expense Category | Examples | Typical Cost Range |
|---|---|---|
| Legal/administrative | Business registration, permits, EIN, contracts | $50-$5,000+ (varies widely by business & state) |
| Licenses/permits/insurance | Local licenses, liability insurance | $100-$1,000+ (special licenses can be much higher) |
| Location (if needed) | Office/store rent, deposits, utilities | $0 (home/online) to $10,000+/month (prime city spots) |
| Equipment/technology | Desks, computers, software, POS systems | $500-$20,000+ depending on needs |
| Inventory/supplies | Stock, raw materials, packaging | $0 (service/digital) to $20,000+ (retail/manufacturing) |
| Marketing/advertising | Website, ads, branding, business cards | $100-$5,000+ to start |
| People costs | Salaries, benefits, contractor fees | $0 (solo) to $10,000+/month (teams) |
| Professional services | Accounting, legal, consulting | $500-$10,000+ as needed |
| Working capital | Emergency funds, cash cushion | Usually 10-20% of total planned costs |
Hidden costs to watch for
Even if you plan carefully, some expenses can sneak up on you:
- Extra permits or compliance fees: You may need specific permits or certifications not included in your first plan.
- Software subscriptions: While one or two tools don’t seem expensive, adding several monthly services can grow into a major expense.
- Shipping and returns: If you sell products, shipping and handling costs grow with your sales, and you may pay even more to handle returns.
- Maintenance: Expect to repair, upgrade, or replace things like equipment, software, or even your website as your business grows.
How to handle surprise costs
- Do research by talking to business owners in your field. They can point out common “gotchas.”
- Keep an emergency fund-set aside 10-20% of your total budget just in case.
- Check your spending each month to spot problems early. Update your budget regularly.
Example: Online business startup cost breakdown
Starting an online business can be cheaper, but you’ll still spend money. Usual items include:
- Domain: $10-$20 per year for your business website name
- Web hosting: $5-$100+ per month, depending on site size and traffic
- Website or shop design: Simple sites can be a few hundred dollars; advanced ones more
- E-commerce/store platform: $5-$299 per month (Shopify, WooCommerce, etc.)
- Payment processing: Around 2-3% per transaction
- Online ads: Start as low as $100; some spend thousands per month
- Inventory: If dropshipping, very low startup cost; if you stock products, plan for storage, packaging, and shipping
- Content and social media: Can do yourself or pay freelancers ($50-$3,000+ per month depending on how much help you need)
How to figure out your own startup costs
- List every possible expense, even small ones
- Sort into one-time and recurring categories
- Research real prices-ask others in the business, get vendor quotes, and use tools like the SBA’s spreadsheet
- For common costs, use “rules of thumb” (like spending 7-8% of sales on marketing)
- Plan for growth in stages (for example, plan for basics first, then more spending after you earn some revenue)
- Use online calculators or business budget templates for help
Ways to pay for your startup costs
- Personal savings/family help: Most small businesses start this way. It gives you flexibility and no loans to repay.
- Business loans: Banks or the Small Business Administration offer loans. Expect interest rates around 8% depending on your credit and location.
- Government grants: Useful for certain fields but hard to win and may require extra paperwork.
- Business credit cards: Handy for small purchases, but don’t let balances pile up with interest.
- Crowdfunding and investors: Platforms like Kickstarter or private investors can provide funding but often expect equity or future repayments.
How to cut startup expenses
- Use shared and flexible workspaces so you only pay for space when you need it.
- Try the “lean startup” method: Start simple, test your idea, and only grow when you earn more.
- Negotiate with suppliers for better prices or bundled deals.
- Use free or low-cost technology tools to keep costs down.
- Automate what you can to save on labor.
Why making financial forecasts is important
Having a plan for your money does more than help you get started. You’ll know how much cash you need every month, spot financial problems before they get serious, and be ready to grow in the future. Two useful tools to use:
- Break-even analysis: Shows how many sales you need to cover your costs before you make a profit.
- Cash flow analysis: Tracks when money is coming in and going out, so you’re not caught short when bills are due.
Frequently asked questions about startup costs
What does it typically cost to start a small business?
Some online businesses can start for under $1,000. Home-based or small service businesses might need $2,000-$5,000. A business with a store or employees may need tens of thousands or more. Estimate based on your own plan and needs, not general averages.
Is $10,000 enough to start?
Yes, for many businesses, especially online stores, services, or solo consulting, $10,000 is plenty-if you spend carefully and focus on essentials.
How long until a new business is profitable?
It usually takes time-often 18 to 24 months. Most new companies don’t make a steady profit right away. Early sales often go back into the business. Be patient and watch your budget.
How can I avoid common budgeting mistakes?
- Don’t leave out big one-time costs like equipment or licenses.
- Watch for small monthly fees that add up.
- Include extra costs tied to inventory and staff (like taxes and benefits), not just their salaries.
- Budget for slow sales at first-don’t expect to make money right away.
- Always include an emergency fund in your plan.
- Update your budget every few months as things change.
