Business Start Up Costs

What Are the Startup Costs for a Business

 

Business startup and organizational costs could vary depending on your industry, target demographic, tangible, and intangible assets, etc. There is no one “average startup cost.”

In the current post-pandemic economic climate, competition is stiff. Business owners need to anticipate their startup costs and the ongoing organizational expense to get the cash flow necessary for growth and profitability.

First, properly assess what you have available for startup funding, including any startup assets. Where is money coming from to launch your business? Is there a hidden cost? Is it from personal assets, or will you need a business loan? You will have a range of capital expenditures and capital costs. 

Launching a business means you will have start-up expenditures. The types of costs are different for each respective industry. The following are some of the most common examples of organizational expenses, the average startup costs, and capital expenses. Realistic startup costs vary. 

You’ll be better off starting with a realistic business plan.

Don’t forget a business isn’t a business until it opens a bank account under the business name. 

Professional services and legal fees are a startup expense ranging from a few hundred to $10,000 or more, depending on the legal entity. Understand the differences between a limited liability company, a partnership agreement, or another business model and the complexity of your legal situation. 

For example, if you’re starting a new business, hiring an attorney may not make sense until you have at least one client. On the other hand, you need to set things up right away if you’re selling online. If you’re planning to incorporate, you should consider hiring an attorney as soon as possible.

The cost of accounting services depends on the amount of work and the type of accounting service you require (e.g., bookkeeping vs. payroll processing). 

You might also consider using a professional accountant who specializes in small businesses. These professionals typically charge lower hourly rates than those set by accountants with larger practices. 

There are benefits to having a CPA on staff, including tax preparation and audits. Getting the method of accounting down at the beginning can go a long way to help mitigate issues later.

Getting a handle on the types of expenses, typical startup costs, and what is a deductible expense (and a tax deduction) can save you a lot of headaches. Whether it’s an online business or brick-and-mortar businesses, you need to keep track of ongoing expenses, even during the startup phase. 

Your focus and goal are profit activity. You need to make money through business activities. 

You’ll likely incur a premium payment if you purchase insurance through your broker or a commercial insurer. This amount depends on the type of coverage you choose, such as general liability, workers’ compensation, etc.

Startup Costs: How Much Should I Budget?

 

When determining how much money you should budget for startup costs, you must first select the total number of employees you plan to hire. Even if you’re a sole prop, you need to account for paying yourself. Next, calculate the average salary per employee (including yourself). Then add all these numbers together to arrive at a rough estimate of the total startup costs for payroll.

Once you know this average cost, divide it by 12 to determine how much you should budget each month. Payroll costs can take a significant bite out of your revenue. 

Are you looking to live month to month or make money? You need to know your profit margins, which means you need to understand your actual expenses to produce your product or service. Are these one-time expenses part of the startup expenditures or ongoing? All businesses have both fixed costs and variable costs. 

Let’s say you plan to start a new restaurant in January 2023. This example is for part of the restaurant startup costs. You expect to employ ten people during peak season, and each person earns $20/per hour. 

Therefore, to calculate startup costs, you would multiply $20 x 10 equals $200 per hour to operate the restaurant. How many hours are you open daily? Now, divide this number by 12 to determine how much you should budget monthly for employee salaries and operating costs.

Now that you know how much you should budget for one part of your startup expenses, it’s important to note that this is only a guideline and some examples of startup costs. Your startup costs will differ based on the type of business you’re launching and other factors. That’s why it’s essential to keep a list of actual or anticipated expenses.

You can use this information to help you set realistic expectations about your business idea and startup costs. Remember, startups aren’t cheap! But your dream doesn’t have to break the bank either.

If you have any questions regarding business start up costs, please feel free to contact us today. We look forward to helping you launch your dream business!

It’s time to take control of your financial future.

Financial Freedom Starts Here

 

1. Market Research Costs

 

High-level Market Report Cost: $3,500 

Market research is critical when developing a marketing strategy. In fact, without market research, you won’t even know where to begin. To conduct effective market research, you’ll need to identify potential customers and learn their buying habits.

Detailed Market Report Cost: $1,000

A detailed market report provides an overview of the industry you plan to enter. For instance, if you’re starting a dog grooming salon, a detailed market report will provide you with details like the size of the market, the average household income, the number of pet owners in different regions, etc.

Product-specific Market Report Cost: $5,000

If you create a product, you must conduct extensive research before launching your product. This research includes identifying competitors, researching consumer preferences, and learning more about their buying habits to develop a solid marketing strategy.

Competitive Analysis Cost: $4,000

Competitive analysis helps you understand your competition and its strategies to gain market share.

Customer Interviews Cost: $6,000

Customer interviews are another essential component of market research. The interviews allow you to get direct feedback from real consumers, and these interviews also give you insight into what makes them tick.

Industry-wide Market Report Cost: $7,000

An industry-wide market report gives you an overview of the entire industry you’re entering. For example, if you’re starting an online pet store, an industry-wide market report will tell you everything from the size of the market to the average customer lifetime value (CLV).

2. Incorporation Expenses

 

Incorporation Filing Fees (state/country-specific): $300 – $900

The incorporation filing fee varies depending on which state or country you live in or conduct business. Some states charge higher fees than others for business registration fees.

Corporate Formation Fee: $0 – $100

The corporate formation fee may include your total cost depending on your corporation. However, it’s important to note that many other expenses are associated with setting up a company, such as legal fees, accounting services, and bookkeeping software.

These additional costs vary based on the specific business structure you select.

Legal entities include: 

• Sole Proprietorships
• LLC, 
• Sub-S 
• C-Corp, 
• Partnership

 

Sole Corporate Formation Fee: $0-$100

Depending on the corporation or business type you choose, the corporate formation fee may be a part of your total cost.

However, it’s important to note that many other expenses are associated with setting up your company, such as legal fees, accounting services, and bookkeeping software. These additional costs vary based on the specific business structure you select. Be educated about the business entity you choose. 

Documentation Preparation & Filing Services: $0 – $500

Document preparation is one of the most time-consuming aspects of starting a new business. The process takes a few hours to several weeks to prepare all necessary documents for incorporation. In addition, some states require filing specific types of documentation at different times. In addition to the initial document preparation, there are ongoing costs related to maintaining your incorporation paperwork.

Attorney and agent fees (for complicated/multi-faceted businesses): $0 – $1,000

If your business requires an attorney or agent to help you navigate the process of incorporating, you will add his expense to your overall start-up budget.

Accountant Fee: $0 – $2,000

An accountant is often required if you’re planning to incorporate your business and file a tax return. This expense includes preparing financial statements and tax returns and keeping track of cash flow, deductible expenses, and taxable income. Accountants also offer advice about setting up your books to be easy to manage.

Accountants or CPAs will help determine if an asset is a capital expense. Fixed assets, such as new buildings or company equipment, are examples of capital expenditures, and intangible assets, such as patents and other technology, and improvements to existing facilities.

Bookkeeper Fee: $0 -$5,000

A bookkeeper is someone who keeps track of your finances and prepares reports. They can also make sure that your bills get paid on time. Bookkeepers typically charge by the month, although they may have hourly rates for special projects.

Business Plan Consultant Fee: $0-$3,000

A business plan consultant helps entrepreneurs develop a detailed business plan. They can guide everything from marketing to financing options.

Business Plan Writing Service Fee: $0-$6,000

There are plenty of companies that will write you a business plan for free or for a low price.

Business Name Registration Fee: $0-$300

The state where you want to register your business name charges a fee.

Fees for Business Licenses: $0 – $300

There could be additional local, county, and state fees depending on what type of business license you need. For example, if you’re opening a restaurant, you might have to pay a franchise fee.

Legal Fees: $150 – $1,500

Legal fees vary depending on whether you incorporate as a sole proprietor or form a corporation. You can expect legal fees to range from $150 to $1,500 per hour. The average hourly rate for an attorney is about $200. A law firm may charge you an initial consultation fee of up to $500.

Accounting Software: $0 – $1K

Accounting software is essential for any small business owner who wants to keep track of their finances. There are many options, but each has its pros and cons, and you should consider these factors when choosing a particular program.

Software Licensing Fees: $0 -$ 1,000

Depending on how much software you need, licensing fees can add up quickly. Most programs include a free trial period, so you’ll want to check the terms before purchasing.

Website Design/Development: $0 – $15,000

Website design and development costs vary widely based on the complexity of your website’s features. Your site needs to offer something unique enough to set itself apart from other websites in your industry.

Website Hosting Fee: $0 – $2,000

If you decide to host your website, you must purchase web hosting services. This service usually includes space on a server that hosts your website files.

Domain Name Registration: $0 – $100

Domain name registration is another necessary expense. Many domain names are available for free through public registrars like GoDaddy.com, but others cost money, and the price depends on the length of time you wish to register the domain.

DBA Fee: $0 -$ 2,000

A database administrator (DBA) is someone who manages databases and ensures they run smoothly. They also provide data integrity by backing up and restoring them as needed.

Permits & Licenses: $0 – $500

Depending on where you live, permits and licenses may be necessary for certain businesses. For example, if you plan to sell alcohol, you might have to obtain a permit and pay taxes.

Business Taxes: $0 – $???

Taxes are a necessary evil in most states, and some states charge sales tax while others don’t. Others require annual property taxes. Other expenses include insurance, utilities, advertising, etc.

 

3. Business Insurance Costs

 

What Insurance Policy Suits Your Needs?

In addition to your business license and permit requirements, there are several different kinds of insurance policies that you should consider buying. These cover specific risks associated with running a business.

Insurance Types

General Liability Insurance Cost: $0-$300

The cost of general liability insurance depends on your industry. For example, construction companies typically spend more than average because their workers can cause serious injuries.

However, small businesses usually spend less than average because they rarely need to file claims. General liability insurance protects against lawsuits resulting from bodily injury or damage to property caused by an insured person and covers legal defense costs and any judgments or settlements. 

Property Damage Insurance: Cost: $0—$500

Property damage insurance protects your business against losses caused by fires, floods, lightning, earthquakes, and other disasters. This type of policy insures against loss due to theft, fire, vandalism, windstorm, and other hazards. 

Commercial Auto Insurance: Cost: $0 — $5000

Commercial auto insurance protects your vehicles. This type of coverage protects vehicles used for commercial purposes, such as delivery trucks, taxis, and vans.

Professional Liability Insurance Cost: $0-$1000

Professional liability insurance protects professionals who provide services to clients. Examples include lawyers, doctors, accountants, architects, engineers, dentists, veterinarians, financial advisors, real estate agents, etc.

Workers’ Compensation Insurance Cost: $0-$100

Workers’ compensation insurance helps employers pay for medical care and lost wages for workers injured. In some cases, it also covers legal fees if an employee sues his employer for negligence.

Business Owner’s Policy Insurance Cost: $0 – $500

Business owners often choose this type of insurance because it combines general liability insurance and professional liability insurance.

Data Breach Insurance Cost: $0 – $2000

Data breach insurance helps businesses recover stolen sensitive information about customers, employees, or others.

Employee Benefits Insurance Cost: $0–$200

If you have employees, they may want to purchase health insurance through your company’s plan. Your plan will likely offer better rates than individual plans available. Health insurance premiums, life insurance coverage, and 401k can be costly when considering employee benefit programs. Decide what business expenses are critical during the startup period.

Disaster Recovery Insurance Cost: $0 — $3000

Disaster recovery insurance helps you recover after a natural disaster strikes. It includes restoring power and water, replacing damaged equipment, and retrieving data from backups.

Business Interruption Insurance Cost: $0–$1000

This coverage pays you back if your business closes due to a covered peril.

 

4. IT Infrastructure Costs

Computer Equipment (Desktop, Laptop, Tablets) Cost: $0 – $2000

Computer equipment costs vary depending on how much memory, storage capacity, processing speed, etc., you need. You can get a rough estimate using our calculator below.

Network Infrastructure Cost: $0 – $1000

Network infrastructure costs include hardware, software, networking services, and bandwidth. Depending on what kind of network you use, these costs could be between $0 and $10,000 per month.

Business Software Costs: $0 – $1500

The software cost varies based on whether you buy licenses for each employee or just one license that covers all employees. 

Cloud Service Provider Cost: $0 – 500

Cloud service providers are companies that provide cloud computing resources such as servers, storage space, and networking. The providers typically charge monthly fees based on usage.

Office Supplies & Other Business Expenses Cost: $0 – $1500

Office supplies and other expenses include paper, pens, pencils, staplers, tape, markers, binders, folders, post-it notes, calculators, printers, fax machines, copiers, and scanners.

Cloud Computing/Server Configuration Cost: $0 – $5000

Cloud computing/server configuration costs depend on which cloud computing solution you choose. For example, Amazon Web Services offers several different types of solutions, including S3, EC2, RDS, Elastic Beanstalk, EBS, SimpleDB, Redshift, SQS, Fargate, IAM, API Gateway, Lambda, Kinesis Firehose, DynamoDB, and many more. Each solution has its own set of costs associated with it.

Ecommerce Website Setup Cost: $0 – $2000

An ecommerce website setup involves setting up the domain name, hosting, payment gateway, shopping cart, and any additional features you may want. 

Website Maintenance Cost: $0 – 2000

A website maintenance plan usually consists of updating content, adding new products, fixing broken links, etc.

Website Design Cost: $0 – $3000

Website design is essential for running a successful online store. It includes creating the layout, colors, fonts, images, and other elements.

 

5. Workspace Costs

Assigned/Shared/Coworking Spaces Costs: $0 – $2000

Assigned/shared/coworking spaces can range from free to expensive, depending on your needs. Some coworking spaces offer unlimited access to their facilities, while others have limited hours.

Hybrid Working Models Costs: $0 – $1000

Hybrid working models combine some shared office space with remote work options. These hybrid models often require a minimum number of days per month to be considered full-time.

Virtual Work Space Costs: $0 – $2500

Virtual workspaces allow employees to use their home or another location as their workspace. This option saves money for employers who don’t need to pay for office space but still want their employees to work remotely. 

Working Models Costs: $0 – $5000

The cost of each model depends on how much you spend on your lease agreement, office furniture, equipment, and utilities.

Janitorial Services Costs: $0 – $500

Janitorial services come with most office leases. They typically clean bathrooms, kitchens, break rooms, conference rooms, and lobbies.

Office Cleaning Costs: $0 – $700

Most commercial buildings have janitorial staff cleaning common areas such as restrooms, hallways, break rooms, and conference rooms.

Cleaning Supplies Costs: $0 – $200

Cleaning supplies include everything needed to clean a building, such as mops, brooms, vacuum cleaners, trash cans, etc.

 

6. Marketing and Sales Expenses

Digital Branding & Advertising Costs: $0 – $3000

Digital branding and advertising costs are used to create a professional image for your business and online presence. Examples include logo creation, social media marketing, email marketing, search engine optimization (SEO), and web development.

Marketing Plan & Strategy Costs: $0 – $6000

Marketing plans and strategies help businesses achieve their goals by outlining what they will do to promote their brand and sell their product. They also provide a budget for marketing activities like advertising, public relations, events, sales promotions, etc.

Social Media Marketing Costs: $0 – $5000

Social media marketing costs vary based on the type of platform you choose and the services that you buy. Popular platforms include Facebook, Twitter, LinkedIn, Google+, Instagram, Pinterest, Tumblr, YouTube, Snapchat, Periscope, Vine, etc.

Search Engine Optimization (SEO) Costs: $0 – 10000

SEO costs depend on the size of your company, the keywords you target, and the amount of traffic you expect.

Email Marketing Costs: $0 – 5000

Email marketing costs vary depending on the frequency of emails, the type of service you purchase, and the number of recipients.

Lead Generation & Conversion Costs: $0 – 3000

Use lead generation and conversion costs to attract new customers and convert them into paying clients. Examples include cold calling, direct mail campaigns, telemarketing, and other forms of lead generation.

Customer Acquisition Costs: $0 – $2000

Customer acquisition costs can be high if you hire an agency to find potential leads. However, customer acquisition costs can be less if you have a good reputation in your industry and already have existing customers.

Customer Retention Costs: $0 – $1000

Use customer retention to keep current customers happy and loyal. These costs may include providing excellent customer service, offering discounts or special deals, and making sure your website is easy to use and has all the features customers want. 

Marketing Automation Costs: $0 – $500

Marketing automation costs vary depending on the software you choose and how much time it takes to set up and implement. Some companies offer free trial periods so you can test out different programs before committing. 

Offline Marketing (flyers, brochures, business cards) Costs: $0–1000

Offline marketing costs vary based on whether you print your materials or buy them from a printing company. If you publish your flyers, brochures, etc., you will need to pay for paper stock, ink/toner cartridges, mailing envelopes, postage stamps, etc. You only need to pay for their design and production if you buy printed materials.

 

7. Human Resources

Recruitment & Hiring Costs: $0 – $200

Recruitment and hiring costs depend on the size of your team, and they also depend on what kind of positions you’re filling. For example, if you’re looking to fill a position requiring specific skillsets or experience, you might spend more money than looking to fill a job with no requirements.

Human Resources (HR) Costs: $0 – $100

HR costs help manage employees, including payroll, benefits, training, employee records, etc. You can save significant money by outsourcing some of these tasks, but make sure you get the best deal possible. 

Compensation & Benefits Costs: $0 – $300

Compensation and benefits cover everything from salary and healthcare to retirement plans and vacation days. Ensure you understand what you’re paying for and don’t overpay for these items.

Training, Productivity, and Development (HR Tools) Costs: $0 -$100

Training, productivity, and development (or HR tools) costs vary based on your tools. If your organization uses a CRM system like Salesforce, you’ll have to pay for that tool. Instead of using a CRM, you can use an internal spreadsheet and won’t have to pay anything extra.

Employee Onboarding Costs: $0 – $150

Use employee onboarding costs to help new hires feel comfortable in their roles and adjust to their new environment. This expense includes things like orientation sessions, introductions, and training.

Employee Recognition Programs/Incentives Costs: $0 – $250

Employee recognition programs and incentives include gift cards, cash bonuses, and other rewards. These can be great ways to motivate your team and keep them engaged. However, they can also be expensive.

Employee Tracking and Remediation Systems Costs: $0 – $500

Employee tracking and remediation systems costs vary depending on the data you want to collect and store. Some companies store this information internally, while others outsource it to third-party providers.

 

8. Additional Funding

After a while, it’s not unusual for the entrepreneur to look for outside funding. Getting startup funding can be a full-time job. Depending on numerous factors, you may look to secure lines of credit. Always remember you need to be able to make the loan payments, regardless of the loan type.  

Small Business Administration

Small business administration loans are available through banks, credit unions, and government agencies. The SBA offers several different types of loans, such as microloans, small business loans, and disaster loans.

Microloan Loans: 

Small businesses with less than $150,000 in annual gross sales can apply for a microloan through the SBA. If approved, the loan will typically range between $10,000 and $35,000.

Small Business Loan: 

Small business loans are through banks, credit unions, or alternative online lenders. It is usually more significant than a microloan, ranging from $50,000 to $500,000.

SBA Grants: 

Small businesses can utilize SBA grants for various marketing, research and development projects, etc. Business owners must meet specific requirements before applying for an SBA grant.

Small Business Development Center

A small business development center provides free assistance to entrepreneurs in developing their ideas into viable businesses. They offer workshops, seminars, mentoring, and counseling services.

Startup Incubators

An incubator helps startups grow by providing office space, equipment, and access to capital. Many incubators provide these services at no cost to the company.

Angel Investors

An angel investor provides money to early stage startups. Angel investors often invest in multiple startups at once.

Funding Rounds

If you’re looking for additional funds, consider raising venture capital. Venture capitalists invest in startups that have already generated revenue, and they expect the founders to have experience running a business.

Small Business Loans

If you don’t meet traditional bank loan requirements, options are still available. Small business loans come in many forms, but most require collateral. 

Here are some examples of small business loans:

Commercial Lines of Credit (CLOC)

Commercial Lines of Credit (CLOCS) allow you to borrow against your assets. CLOCS are secured loans, and you must put up something of value as security for the loan. If you own an auto dealership, you could use the equity in your cars as collateral for a CLOC, as an example.

Term Loans

Term loans are unsecured loans, and these loans do not require collateral. However, they carry higher interest rates than CLOCS.

Equipment Leases

Equipment leases are also known as operating leases. An equipment lease allows you to take possession of the equipment without paying for it upfront. Instead, you pay rent each month until the lease expires. At that point, you either purchase the equipment or return it to the leasing company.

Working Capital

Working capital refers to short term financing used to cover cash flow needs. Some companies use working capital to fund inventory purchases, and others use working capital to finance payroll expenses. While the interest on a loan may be a business expense for tax purposes, the repayment is also a monthly expense (add it to your monthly expenses). 

How much capital do you need to start a business?

The amount of money required to start a new business varies widely depending on several factors, such as your location, what type of business you plan to launch, and how successful you want to be. In general, starting a business requires less money than maintaining one.

If you need more information about starting a business, visit the U.S. Small Business Administration’s website at https://www.sba.gov/business-guide/10-steps-start-your-business.

Conclusion

Indeed, the considerations for business startup costs are manifold; however, they are not entirely different from those in the past. 

Considering that your plan and research are on point, there seem to be fewer uncertainties about which business startup costs to expect and how to incorporate them into your business plan best.

Starting a new venture is not easy, requiring dedication and hard work. But if you have a good idea, you are ready to start your business. 

Good luck!