One of the first and most daunting questions every entrepreneur faces is “how much does it cost to start a business?” And the truth is, there’s no one-size-fits-all answer.
Every business is different, and the costs each will face can, and do, vary greatly. The only guarantee is that you will have some amount of costs to deal with, whether that be $100 per month or $10,000.
That said, there are a few major costs that most businesses will have to contend with before they can truly get off the ground. Knowing what to expect in these categories will help you to plan and prepare for your upcoming business expenses.
Read on to learn how to get a rough estimate of your business startup costs.
Office Space
Whether you’re operating from your home, using a shared workspace, or renting your own storefront, office space is going to be one of your highest costs in the beginning stages of your business.
Because even if you’re working out of your home, you’ll need a dedicated office to work from. Attempting to work from your bed or couch can have a serious negative effect on your mental health, which will in turn lower your productivity. This might mean renting a larger apartment or making a few updates to create a workspace in your garage.
If you choose to rent an office space, your rent will depend on the location and size of your building. However, you can expect to spend at least $30 per square foot. Those in major cities such as New York City or Los Angeles will be looking at closer to $100 per square foot.
Registering Your Business
No business can operate legally without acquiring all of the necessary licenses and permits. Again, these vary depending on the industry in which your business falls. You’ll need to either research the requirements for your specific industry or hire a lawyer to help you.
Thankfully, registering your business will be low on your lists of business startup costs, regardless of industry. License and permit fees are typically between $100 and $300.
Necessary Equipment
For certain online businesses, all that’s needed is a computer and a smartphone with a decent camera. If you’re planning to start this type of company, your equipment costs might be next to nothing.
On the opposite end of the spectrum, those interested in opening a restaurant or breaking into another equipment-heavy industry could be looking at equipment costs in the six figures.
The best way to go about this is to look into other businesses operating in your specific industry and make a list of what you’ll need to get started. For example, if you want to open a business giving music lessons, you’ll need instruments, songbooks, music stands, and chairs.
No matter what type of business you’re opening, a computer and a means of accepting payment for your goods or services are a must.
Inventory and Supplies
Those entering the retail industry, whether that be opening a brick-and-mortar shop or running an e-commerce website, will need to set aside a certain amount for inventory and supplies. After all, it’s bad business to sell things you don’t have yet!
This part of your calculations can be tricky. You don’t want to invest too much into inventory and end up with a mountain of waste on your hands. But you also don’t want to invest too little and create unhappy customers who have to wait months to receive their order.
That said, a good rule of thumb is to set aside around a quarter of your budget for these expenses. You should spend the most on inventory in the beginning, as generating business and maintaining a high level of customer satisfaction will never be more important.
Employees and Payroll
Even if you only have one employee in the beginning, you have to pay them! Your payroll expenses will include net pay, bonuses, commissions, overtime, and paid time off for each employee working for you.
Most employees cost between 1.25-1.5x their salary. For example, if your employee makes $50,000 per year, you’ll need to budget $66,000-68,000 per year. This will cover the various taxes and fees you have to pay in addition to their salary.
You can lower your costs by opting for 1099 contractors rather than salaried employees. This will remove the burden of payroll taxes from you and place it on the employee instead.
Get Help for an Exact Answer to How Much Does It Cost to Start a Business
As you can see, there are many costs that go into starting a business. The specific ones you’ll face and the amounts of each will depend on your exact situation.
Because of this, it’s a good idea to get help from a professional business financial planner before diving too deep.
Unless you have a large sum in savings to use for your business, you’re going to need financing. Getting advice from a financial advisor will remove any potential guesswork involved with both costs and funding, putting you on the path to success right away.
Start Your Business Financing Plan Today
Whether you get help from a professional or calculate your costs on your own, you now have the answer to “how much does it cost to start a business?”
With this number in mind, you have two options. You can start reaching out to financing agencies or design a budget to save up for your startup costs on your own. Each option has pros and cons; the right choice for you comes down to your timeline, current income, and personal preference.
Looking for more advice and ideas for finding success with your business? Be sure to check out our blog!
