Starting a Business: The Basic Costs

Updated: Feb 3, 2025

In 1985, Howard Schultz, the founder of Starbucks, needed $400,000 to launch his business and open the first coffee shop. After 200 investors turned him down, Schultz raised the money himself, beginning the Starbucks empire.

While that worked for Schultz and started a multi-billion dollar enterprise, there are now many easier ways to fund your business. Most can provide start-up money in just a few weeks.

When starting a new business, experts say that a healthy amount of funds for a new business is a minimum of $80,000. This may be an overwhelming number if you’re a small business owner. Therefore, it is a good idea to understand the start-up costs of a business to kickstart your brand better.

If you’re unsure how much you need or how best to use the money, read more below for some tips on getting started.

Calculate Your Business Startup Costs

Although the average cost of starting a new business from scratch is about $80,000, this amount varies widely depending on the type and scale of the business.

• Small businesses, including freelance, online, or home-based businesses, require less funding—sometimes as little as $3,000.
• Franchises are also a low-cost option. Home-based franchises can be launched for as little as $1,000 to $5,000. The cost depends on your industry, location, and how big or small you want to start.

On average, small business owners spend $40,000 on operations in their first full year. To prepare for unexpected expenses and challenges in the future, it’s better to overestimate your funding needs.

The Small Business Administration offers the following list of necessary costs, using a pizza restaurant as an example, to help entrepreneurs begin calculating the startup costs for their new business.

One-Time Startup Expenses

• Security Deposit
  • If you’re renting out a space for your business, you will need funds to cover the security deposit, first month’s rent, and utilities such as electricity and water.
• Equipment
  • Most businesses need the necessary equipment to provide their products or services. For example, restaurant owners must invest in kitchen appliances, tables, air ventilation systems, and other equipment to operate their restaurants.
• Inventory
  • Small yet necessary items that all business owners need are often bought in bulk once every few years. These include necessities like carbonless paper for receipts, office supplies, kitchenware, and more.
• Miscellaneous
  • Other expenses that new business owners tend to overlook are licenses and permits, legal fees, signage, technology, and software, to name a few. These are often fundamental to the business.

Monthly Expenses

• Rent
  • One of the most crucial expenses for a business owner is providing for monthly rent, property insurance, and utilities.
• Employees
  • As a business owner, taking care of payroll, payroll taxes, and health insurance for businesses with employees is essential.
• Professional Services
  • Business owners must also invest in business financing, legal, and consultancy services to better their brand and maximize profit.
• Supplies
  • A frequent expense is supplies, from ingredients to officeware.
• Marketing
  • Every entrepreneur knows that marketing is very important for promoting their business. However, spending on digital advertising and promotional materials is a frequent expense, especially when hiring graphic designers and social media managers.
• Miscellaneous
  • Liability insurance, repairs, maintenance, and organizational dues are also essential expenses for a business.

How To Budget Your Business Start-Up Costs

While most start-ups can be categorized into brick-and-mortar businesses, online businesses, or service providers, each type of business incurs different expenses depending on the business type.

List Down What Your Business Needs

As mentioned earlier, starting up a new business means understanding that there are various expenses to consider, from one-time purchases to monthly costs. Keep in mind that most will include the following;

• Paying employee salaries
• Building advertising and marketing campaigns
• Conducting market research
• Developing communication materials
• Creating and maintaining a website
• Developing a social media presence
• Renting office space
• Buying equipment and supplies
• Paying for utilities and insurance
• Acquiring licenses and permits
• Hiring a lawyer and accountant
• Filling inventory

Mistakenly, small business owners spend a lot of money initially because they are not entirely sure of what kind of expenses their businesses need. Before launching your business, ask yourself if you need to be in an actual building to operate. This is an absolute must for some industries, but if your business can operate just as well in an actual store as online, then consider operating as an e-commerce site.

It doesn’t have to be forever, but without the overhead costs of having a physical office, you could save thousands of dollars on upstart costs. This would allow you to purchase a bigger and better brick-and-mortar that you would otherwise be unable to afford.

Spend Smart and Save Smart

Even with financial support around you, it’s important to rely on yourself to keep your business afloat. By starting a business, you can grow at your own pace and within your financial means. Spending smart should become your mantra.

Here are some smart spending tips to remember;

• Keep your costs low and make every dollar count.
• Keep your business and personal accounts separate.
• While paying your employees, be prepared to take little or no salary for the first year.
• Try to reduce your personal expenses, like cutting off credit card purchases.
• Remember that leasing can be cheaper than buying.
• Do not rush into opening a physical office space.
• Find a savvy and trustworthy banker.
• Learn everything about your business.
• Remember that full-time employees are a huge overhead. Part-timers, freelancers, and independent contractors are cheaper.

You don’t need a flashy office, expensive furniture, or a large team to succeed. Hard work, patience, and dedication are the keys to a successful business.

So, start small and grow as your business grows.

Start Small With INC Authority

While every business requires money, remember that there are many options to help you achieve your dream of entrepreneurship. At INC Authority, we specialize in helping entrepreneurs secure the funding they need with favorable terms.

Incorporating is the most powerful thing you can do to legitimize your startup. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your new LLC today and enjoy the protection due to you and your business under the law.

Incorporating is the most powerful thing you can do to legitimize your startup. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your new LLC today and enjoy the protection due to you and your business under the law.

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• 5 Things to Know Before Starting a Business
• How Much Does an LLC Cost?
• 50 State LLC Formation Guide