Cost to Start a Business
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How Much Does it Cost To Start a Business?

Last Updated on December 27, 2023
Written by CPA Alec Pow | Content Reviewed by Certified CFA CFA Alexander Popinker

Are you one of the many people that think about becoming their own boss by starting a new business? If you are, then you’re probably wondering exactly how much it costs to start a new business. 

Although this article will give you an idea about general costs, in the end, it all comes down to what business you want to start.

It’s obvious that a freelancer trying his luck at online money-making will need considerably less money than someone looking to start his own clothing line manufacturing shop.

So follow the guidelines written below and you can approximate the final cost of your business, but don’t expect to find a single valid answer to this question.

How Much Does it Cost to Start a Business?

If you want to start a business from scratch, you should be prepared for an average of $30,000 to $40,000 in first-year costs for your startup. However, depending on your particular approach, you can start a business with as low as $100, $1,000, or even for free, and on the high end of the range, you can also start a business with millions of dollars in investments.

So for example, you might start a business online with no need for inventory, and this shouldn’t cost more than a few hundred dollars invested in a website and then its needed marketing. A brick-and-mortar business, on the other hand, can cost tens or even hundreds of thousands for the location alone, with additional costs for equipment and furnishings. There are also businesses that have variable expenses for staffing and products, costs that are bound to increase as sales start to pile up.

As soon as you know the rough estimates of the costs of starting a business you are interested in, you can apply for Small Business Administration loans or other ways of funding. Most businesses will use financing as a way of covering the costs incurred before they actually start to make any revenue. You can also begin saving to start your business, so that you need less external financing and ensure you keep a bigger chunk of the ownership of the company.

Can You Start Up a Business with No Money?

Starting a new business with a $0 investment is totally doable, although it isn’t easy. This will also depend on the niche you’re getting into and your business idea. You might also need to consider some strategy adjustments as you move on, to ensure that you start earning money. The internet is full of websites that show you how you can start a new business from home with no investment.

So for example, you can make a name for yourself as a life coach and make an entire online business around this identity by building a solid following and a brand on social media platforms like Instagram or Facebook first. You can then start earning money from clients and when you have enough, build your own website that you can advertise with the funds coming in.

It will be easier if we divide the final cost into smaller expenses, like: 

1. Cost of Production, packaging, and shipping

The first numbers you should think about are the costs of purchasing raw materials, warehousing, product inventories, packaging, and shipping. These numbers could differ greatly, depending on the type of business you get into.

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2. Professional Fees

These costs are easier to predict and will be around the same numbers, regardless of your business model.

These are the fees you’ll have to pay to start your business and then set up the legal structure. These include but are not limited to trademarks, patents, copyrights, starting partnership agreements or joint ventures, attorney fees, and retainers for your accountant.

3. Technology Costs

Depending on your business model and the number of employees you’ll have to hire, you need to find the best way to communicate with your team. This means technology costs like PDAs, mobile phones, printers, computers, and any other equipment required to run your business.

Also take into account the costs of consulting an IT firm, internet connection installation, different subscription fees, and security measures.

4. Administrative Costs

To ensure a smooth day-by-day flow of operations, remember the administration costs, which will include office supplies, telephones, copiers, fax, parking fees, licenses, permits, business insurance, and stationery.

Also have in mind the costs of different office furniture, filing cabinets, and chairs.

5. Sales and Marketing Costs

open your own business

Any successful business relies on its capability to sell its products to customers. If you rely on a high-demand product, all you have to do is to find a way to show your product to possible clients, which means sales and marketing efforts.

If you have a limited budget, you should consider spending on posters, brochures, pamphlets, and all kinds of cheap marketing materials.

For bigger businesses that can spend a lot more on marketing, there are other advertising channels, like attending or sponsoring different trade shows, mailing costs, lead generation costs, costs of your public relations team, and different expenses for traveling and entertaining possible clients.

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6. Wages and Benefits

Many startups require just a small number of employees, or even none at all, so depending on what business you want to start, don’t hire more people than you actually need.

When you think about your employees’ salaries, don’t forget about your own profits. Also be prepared to spend quite a considerable amount on workers’ benefits, compensations, contractor fees, and employee taxes along with the costs of salaries.

How Small Business Owners Can Reduce Costs

When you become a business owner, it might be pretty tough to cover all expenses without getting some substantial help. One thing you could try is to start with free business ideas, get some money, and then invest in businesses that require more substantial initial funding. There are also other methods to develop a starting business, like:

  • Barter: You can try to swap services with other small businesses for professional services you might need, like legal help, for example. For example, if you’re in the business of website development, maybe you can help them design a website while they help you get your paperwork in order.
  • Choose an inexpensive location: You will spend a lot more on rent and other related expenses in the center of booming cities. Try to move away from where all the big shots are.
  • Start online: As long as your business model allows, try to stay away from physical locations until you have the necessary funds to do so. It will be a lot less expensive to fund a business that doesn’t have a dedicated location just yet. So start online, get some revenue, and then use the money to lease or buy property.
  • Get a business credit card: You can get a business credit card that you will use only to cover expenses that you can pay off within the next 30 days. This can add some cash flow and help you get a better credit score, which will enable you to access more future purchases. A credit card is better than a loan in that you will only spend as much money as you have to, although the fees for late payments will be a lot higher.
  • Apply for small business loans: You can also opt for SBA-backed loans. These are easier for a new entrepreneur to qualify for and will also offer better rates.

Summary

Don’t expect to find an exact price for your startup idea anywhere online. It will all come down to the type of business, location, trade restrictions, and many other factors.

Is opening a new business a good idea for our average Joe? Most of the average working people in the US won’t afford to open a big company. That doesn’t mean that you couldn’t open your own freelance business and start working online to make some extra cash. Never spend more than you can afford, start small and don`t forget to spend some of the profits on yourself and in the end, it will all be worth it.

Alec Pow
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