How Much Does It Cost To Start A Business?

by | Jun 7, 2020 | Business, Starting a Business

So you’d like to start a business!  The idea of being your own boss and creating a new venture that could grow and thrive is an exciting prospect.

But starting a business is hard work; especially when it comes to handling the finances. In a study from U.S. Bank, poor management of cash flow causes 82% of business failures. Therefore, it’s going to take more than just a great product or service. You’re going to need someone behind the scenes who knows what they’re doing with the money.

If you think you’re up for the job, then here’s what you need to know about how much it costs to start a business and what you can do to help it succeed.

cost to start a business

Hos Much Do People Typically Spend To Start A Business?

There’s really no “one” answer to how much a business costs.  If you look at the Internet, you’ll find lots of different answers, and most of them will depend greatly on what industry they’re pulling data from.

For example, Microsoft approximates that most start-ups cost $30,000 in their beginning stages.  This is in sharp contrast to reports from the U.S. Small Business Administration which estimates that most micro businesses cost around $3,000 and home-based franchises cost $2,000 to $5,000 to start.

If those numbers sound like a lot of money to you, again, remember that some ventures require even less initial capital than that.  For example, in his book The $100 Startup, author Chris Guillebeau breaks through the old-school way of thinking that says you have to be an MBA or have a rock-solid business plan to have a successful start-up.  He deep-dives into 50 unique case studies of individuals who have taken $100 or less and turned their passion into a thriving micro-business.  

Where do people spent money

So, in short, the answer to how much your business will cost is really going to depend on what you want to do and how you plan to go about doing it.  For that, we’re going to invest some time thinking about what you’ll need to spend money on and where it’s going to come from.

How To Estimate Your Business Costs

Long before you launch your new business, you’ll want to ensure that it’s financially viable.  To do that, you’re going to want to prepare a cash flow analysis.

Small business start up cost

Determine Your Expenses

The first thing you’ll need to think about are the types of expenses you’ll have.  Consider the following:

  • Will you lease a space or work from home?  Will that require you to spend extra on utilities or carry special additional insurance?
  • Do you need to obtain any licenses and permits?  In addition, you’ll want to hire a lawyer and tax professional to make sure all the legal stuff is being taken care of properly.
  • Do you require any special equipment such as laptops, cell phones, tools, specialized equipment, etc.?
  • Do you need to build up inventory and have a place to store it all?
  • Will you need to hire any employees?
  • How will you promote yourself?  Are you going to pay to have an awesome looking website created, or just advertise through social media?  Do you need to put together any special marketing packages or work with an advertising agency?

How Much Revenue Do You Plan To Earn?

In addition to estimating your expenses, you’ll want to also research how much your product or service should be sold for.  Go online to find out as much about your competition as you can.  You might even want to call around to find out what prices they charge.

Once you have all of that, you’ll have to ask yourself a tough question: How much money can I realistically expect to make?  Don’t sugar-coat it!  Be honest and conservative in your estimates.  If you shoot too high, you’ll over-inflate your cash flow analysis and make it seem like this new venture is a sure thing.

Calculate Your Cash Flow

Similar to a household budget, a cash flow analysis is really nothing more than just an estimation of the money that will move in and out of your business.  

For example, you might estimate for Quarter 1 your cash flow will be:

  • Revenue $50,000
  • Expenes $40,000
  • Profits $10,000

You could then continue this analysis into quarters 2 through 4, or even for the next several years out.  You can find more detailed examples of cash flow statements here.

Do A Break-Even Analysis

Another way to look at how your business might be able to survive financially is to do something called a break-even analysis.  This is just a calculation of the number of items or service calls you need to sell before your business can begin to cover its own expenses.

For example, let’s say your new business has $5,000 of fixed costs per month.  You make products that sell for $100 each, but each one carries a variable cost of $50 to make.  In this case, your break-even calculation would be as follows:

$5,000/($100 – $50) = 100

In other words, you’d need to sell a minimum of 100 items before your business can effectively break even.  Once you start selling items above this quantity, you’ll be turning a profit.

Get Financing If Needed

[IMAGE: 03 how to calculate startup costs for small business.jpg]

It’s not that uncommon for businesses to show little to no profit when they’re first getting started.  If it looks like you’re going to be in the red for a little while until you start to generate a sustainable amount of revenue, then you might need to look into getting some financing or a loan.  

Here are a few good options to try:

  • Nonprofit community development finance institutions (CDFIs)
  • Venture capitalists (VCs) 
  • Angel investors
  • Crowdfunding (services like Kickstarter and Indiegogo)
  • Peer-to-peer (P2P) lending (such as Lending Club)
  • Government grants (usually for science or research businesses)
  • Loans for minority-owned businesses

Of course, no one is going to give you a loan just because you asked for one.  Be prepared to demonstrate that you intend on running a legitimate business by formally preparing the cash flow analysis we discussed earlier.  

In addition, these organizations might also be interested in your business plan.  Here’s some advice from the US Small Business Administration on how to write one.

Seek Guidance From Other Business Owners

No one ever said you have to start a business alone.  There are lots of agencies that offer excellent resources such as education and business mentorship.  

Here are a few you can look into:

If you’re looking for more knowledge on how to start a business, you may also enjoy our guide to the six best books on starting a business. Now you know, financially, what it’ll take to start your business. Get out there and make your business a success!

Join the Wealth Pursuits Newsletter
Get game-changing financial tips, investment ideas, and other exclusive content.
We respect your privacy

<span style="font-size:12px;font-weight:500">Author</span><br><a href="" target="_self">Kevin</a>


Kevin is an ambitious entrepreneur that is obsessed with all things related to finance. From a young age, Kevin has always been involved with side hustles ranging from online selling to freelance work. Over the years, Kevin graduated from side hustles and started launching multiple online and offline businesses. Kevin is a serial entrepreneur who loves starting new businesses and exploring all things related to business and finance. He is constantly looking for new ways to save money, invest money, and create income streams.

Related Content:

Best eCommerce Books – Top 11 Picks You Must Read

Best eCommerce Books – Top 11 Picks You Must Read

The business of eCommerce is becoming wildly popular. If you're looking to jump into this world, though, there is a lot to learn. That's where gaining knowledge from the professionals and experts in this field can come in handy. eCommerce books are great for readers...

How To Sell Jewelry Online

How To Sell Jewelry Online

How long do you intend to hold on to that heirloom your Mom left you? You may think leaving it in a jewelry box increases its value, but jewelry products often get damaged if left unattended for a long time. Letting go of some of the jewelry, especially if the money...

How Much Does Business Insurance Cost?

How Much Does Business Insurance Cost?

Insurance is one crucial element you need when starting a business. It hardly matters that yours is a small business. Small business owners sometimes face the same risks that big companies face. For instance, every business is constantly in danger of losses and will...

Best State To Form An LLC – The Right Place For Success

Best State To Form An LLC – The Right Place For Success

When choosing a business structure, the one you pick influences everything from day-to-day operations to taxes, to how much of your personal assets are at risk. You have to choose a business structure that gives you the right balance of legal protections and benefits....

How To Start A Floral Business – Every Step To Success

How To Start A Floral Business – Every Step To Success

Floral businesses are an area many people are beginning to pay attention to. Flowers always seem to be in demand. They are relatively easy to cultivate, with a lot of information being available on the subject. They also offer a ready source of income because of the...

Best VOIP Services For Business – 9 Top Choices To Stay Connected

Best VOIP Services For Business – 9 Top Choices To Stay Connected

Voice over Internet Protocol (VOIP) technology lets anyone place phone calls over an Internet connection. Since VOIP allows you to make a call from any data-driven device, businesses have been taking advantage of this useful technology. Whether you want to collaborate...

Best VPN For Business – The Top 10 Options For Your Network Needs

Best VPN For Business – The Top 10 Options For Your Network Needs

A VPN, also known as a virtual private network, helps individuals and businesses create a safe network connection over the internet. Using a VPN, you’ll be able to access global content, hide your IP address, and avoid data theft.  If you want to protect your...

What Is Business Insurance? – A Complete Guide

What Is Business Insurance? – A Complete Guide

Owning a business comes with a lot of expected challenges, like finding customers, picking the right POS system, or managing supply chains. But when something unexpected happens that impairs or even closes down your business for a period of time, business insurance...

Join the Wealth Pursuits Newsletter
Get game-changing financial tips, investment ideas, and other exclusive content.
We respect your privacy