How Much Does It Cost to Start a Small Business?

There’s not a single number that applies to every aspiring business owner. The cost can range anywhere from a few thousand dollars to millions, depending on factors like your business type, location, and more.

However, with a bit of research, you can get a good idea of the amount you’ll need. If you’re not sure where to start, this guide can point you in the right direction. If you find you need additional capital, our best business loans can help bridge the gap between your current resources and your vision.

Key Factors that Impact Small Business Startup Costs

The overall cost of starting a business depends on a variety of expenses but it’s heavily influenced by key factors such as your location and the industry you’re entering.

• Location: Urban and high-traffic areas increase costs for rent, utilities, and taxes compared to more affordable rural or suburban locations.
• Storefront type: According to a Xero survey, 75% of experts confirm online businesses cost less to launch than brick-and-mortar stores, which require substantial physical infrastructure.
• Size: Larger initial operations demand more resources for inventory, facilities, and staffing, while starting small and scaling gradually reduces upfront costs and risk.
• Industry: Manufacturing, hospitality, and healthcare businesses require specialized equipment, extensive inventory, and unique permits, while consulting or digital services need fewer upfront resources.
• Inventory requirements: Your starting inventory (raw materials, works in progress, and finished goods) directly impacts costs—more inventory means higher startup expenses.

Online Business vs. Brick-and-Mortar Stores

The business model you choose significantly impacts your startup costs. Here's how online and physical businesses compare:

Online Business Startup Costs

• Domain and hosting: $50-$300/year
• E-commerce platform: $0-$300/month
• Website design: $500-$5,000 (or DIY with templates)
• Payment processing: 2.5-3% per transaction
• Inventory management software: $0-$200/month
• Digital marketing: $500-$3,000/month
• Home office setup: $500-$2,000

Total typical range: $2,000-$20,000

Brick-and-Mortar Business Startup Costs

• Lease deposit and first month's rent: $2,000-$10,000
• Utilities deposits: $500-$2,000
• Building renovations: $5,000-$50,000+
• Fixtures and equipment: $10,000-$30,000
• Signage: $500-$5,000
• Point-of-sale system: $1,000-$5,000
• Initial inventory: $5,000-$25,000
• Insurance premiums: $1,000-$5,000
• Local marketing: $1,000-$5,000

Total typical range: $25,000-$150,000

Average Cost by Industry

Different industries have unique cost structures and requirements. Here's a breakdown of average operating costs by industry from the US Census Bureau:

How to Calculate Your Startup Costs

To determine your startup costs:

1. Research your business needs and create a comprehensive list of all expenses.
2. Split these expenses into one-time and ongoing costs (examples below).
3. Research each item's cost by comparing prices online, requesting quotes from multiple vendors, and negotiating—many suppliers offer discounts for new businesses or bulk purchases.
4. Compare your findings with industry benchmarks to ensure you're getting good deals.

According to the SBA, your startup cost calculation should include all one-time costs plus at least one year of monthly expenses. You can also check out the SBA's template for startup costs.

Types of Costs for Your Small Business

When planning your business expenses, it's helpful to categorize costs based on their function and how they relate to your business structure.

Operational Costs

These are the day-to-day expenses required to keep your business running:

• Facilities: Rent/lease payments, utilities, maintenance, cleaning
• Equipment: Machinery, computers, phones, furniture
• Inventory: Product stock, raw materials, packaging
• Technology: Software subscriptions, internet, cloud storage
• Supplies: Office supplies, production materials

Marketing and Sales Costs

These costs help you reach and convert customers:

• Website: Development, hosting, maintenance
• Digital marketing: SEO, PPC advertising, social media management
• Traditional marketing: Print materials, signage, direct mail
• Brand development: Logo design, brand guidelines, visual identity
• Customer acquisition: Sales tools, CRM software, lead generation

Legal and Administrative Costs

These expenses ensure your business operates legally and efficiently:

• Business formation: Registration fees, licenses, permits
• Professional services: Legal counsel, accounting, bookkeeping
• Insurance: General liability, professional liability, property
• Intellectual property: Trademarks, patents, copyrights
• Compliance: Industry-specific regulations, data security

Staffing Costs

Personnel-related expenses often represent the largest category for many businesses:

• Compensation: Salaries, wages, commissions, bonuses
• Benefits: Health insurance, retirement plans, paid time off
• Taxes: Payroll taxes, unemployment insurance, workers' compensation
• Training: Onboarding, professional development, certifications
• Recruitment: Job postings, background checks, hiring services

Costs by Business Structure

• Sole Proprietorship: Lower registration costs, self-employment taxes, and personal liability insurance.
• LLC: Formation fees ($50-$500 depending on state), operating agreement, liability insurance.
• Corporation: Higher formation costs ($500-$1,000+), board governance, more complex tax filings.

Essential Costs vs. Optional Costs

Understanding which expenses are absolutely necessary and which can be delayed can help you prioritize your startup budget and avoid cash flow problems.

Essential Costs:

• Business registration, licenses, and permits
• Basic liability insurance
• Core equipment needed to deliver your product/service
• Essential software/technology
• Minimal inventory to fulfill initial orders
• Basic website or online presence
• Tax ID numbers and basic accounting system
• Initial marketing to reach first customers

Optional Costs (Scale Later):

• Premium office/retail space (consider shared space initially)
• Advanced equipment upgrades
• Premium software packages
• Large inventory stockpiles
• Extensive branding and marketing campaigns
• Additional staff (consider contractors initially)
• Company vehicles
• Extensive office furniture and decor
• Premium business services

Fixed Costs vs. Variable Costs

Fixed Costs

Fixed costs remain relatively constant regardless of your business activity level. Some examples include:

• Rent/mortgage
• Insurance premiums
• Loan payments
• Salaried employees
• Subscriptions and memberships
• Base utilities
• Equipment leases

Variable Costs

These expenses fluctuate based on your business activity. Examples include:

• Inventory
• Shipping and packaging
• Credit card processing fees
• Hourly labor
• Commissions
• Utilities tied to production
• Raw materials
• Marketing spend

Pro tip: Adjust these expenses as your business needs change—increase them when you're busy and cut back during slow seasons or tough economic times.

Average Small Business Costs

While specific costs vary by industry, here's a general breakdown of what most small businesses can expect to spend in their first year:

Solopreneur/Microbusiness (1 person)

• Startup costs: $2,000-$10,000
• Monthly overhead: $1,000-$3,000
• First-year total: $15,000-$40,000

Small Team (2-5 employees)

• Startup costs: $10,000-$50,000
• Monthly overhead: $5,000-$15,000
• First-year total: $70,000-$200,000

Here's how a typical small service business with 2-3 employees might break down their first-year expenses:

The first year of business can be challenging, as you’re fighting an uphill battle to establish yourself in the market. According to the US Bureau of Labor Statistics, about one in five businesses that opened in March 2023 closed down within one year.

However, you can improve your odds of success by estimating your costs as accurately as possible and building in a financial buffer to bridge any unexpected gaps.

According to Rohit Arora, chief executive officer of Biz2Credit, entrepreneurs should "create a professional business plan that outlines startup costs for all of these things and then double it. The reason? Inevitably there will be setbacks, delays, and mistakes that can become quite costly. It's important to have cash on hand to cover these occurrences."

Bottom Line: Get Your Dream Started

Estimating small business startup costs can be challenging, but careful planning can improve your odds of success. By understanding the costs involved, securing funding, and managing expenses, you can position your business for long-term growth and profitability.