Every Factor That Goes Into the Cost to Start a Business—And How You Can Save

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How Much Does It Cost to Start a Business
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  • The cost to start a business has a wide range of $100 to $400,000, though the national average cost is $40,000.
  • The cost to start a business will vary depending on the necessary incorporation fees, business license and permit fees, business insurance costs, tool and equipment purchases, and income taxes.
  • Starting a business has many benefits, including flexibility, tax breaks, financial independence, and job security.

The day-to-day drive of full-time employment can be draining, and many people caught in this cycle dream of starting their own business. But starting a business isn’t as simple as putting an advertisement on the internet. There are many costs and considerations for an entrepreneur to work through before the business can get off the ground. Business start-up costs are one of the first considerations for an aspiring entrepreneur to take into account.

While some small businesses can get started for as little as $100, more complex businesses may require an investment of $400,000 or more. The total cost to start a business depends largely on the type and complexity of the business, along with state regulations and fees and several other factors. Working through the elements that contribute to the cost of starting a business and developing a business expenses list will make it easier for a potential business owner to develop a reasonable budget for making the dream of starting a business into a reality.

Factors in Calculating the Cost to Start a Business

How Much Does It Cost to Start a Business
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Starting a business requires more than a good idea and space in someone’s garage. Start-up costs can include the obvious elements such as product or service development, certifications, licenses, business financing, and more. Online business calculators, such as those offered by the Small Business Administration (SBA), can be helpful in developing a budget. But to use them effectively, it’s important for an entrepreneur to understand the different aspects of starting a business in their state and the costs that accompany the process.

Incorporation Fees

For tax purposes, there are different types of business entities that must be registered with the state in which the business will operate.

A sole proprietorship is an unincorporated business run by an individual. This type of business uses the Social Security number of the person operating it, which means they won’t need to obtain an employer identification number (EIN) as part of the business registration process.

Although incorporation isn’t a requirement for a business, there are benefits to incorporating, especially if the business will require a lot of investment or debt to run. Incorporation makes the business into an entity that is separate from the owner, which means that the owner’s personal assets are not on the line should the business fail, and creditors can’t seek restitution by seizing the owner’s home or savings. The owner will need to apply for an EIN in order to file their business taxes.

In most cases, the LLC fee or filing fee for articles of incorporation averages under $300, though exact costs will vary by state. This financial protection that this investment provides to the owner often makes the cost worth it. In addition, incorporation comes with tax breaks and makes it easier for a business to acquire loans and financing, as it indicates a certain level of stability.

Those starting a business who aren’t sure if incorporation is the right choice will want to speak with a financial planner or accountant to learn about the benefits and drawbacks for their individual circumstances. Entrepreneurs can also look into working with one of the best LLC services, such as LegalZoom or Northwest Registered Agent, to help them through the process.

Business Licenses and Permits

One of the first things for an aspiring business owner to determine is how to get a business license in their municipality. There are several types of business licenses an entrepreneur may need, and they are generally issued by state business license offices, usually falling under the local Secretary of State’s purview. The license may be issued through the state government or a local entity, and it indicates that the state or local government has approved the credentials of the business and given it the right to do business.

Different types of businesses must meet specific criteria for licensing, and they may require separate permits. For example, restaurants require food safety permits and health certificates, while electricians need to have the appropriate training and certification to acquire a license.

Online business owners may wonder whether they need a business license to sell on Etsy, eBay, or similar marketplaces. Local ordinances may require a business license for such businesses, especially if the seller is producing homemade beauty products, cosmetics, or food.

But exactly how much does a business license cost? The total cost of licenses and permits will depend on the area in which the business operates and the types of licenses and permits that are necessary. In general, though, a business owner can expect to pay between $75 and $500 per year.

Business Insurance

Business insurance is a critical component of any business plan. Insurance provides protection against a wide range of financial loss. If someone sues the business because they were harmed by a product or slipped on the ice outside the office, a liability insurance policy can likely help pay those claims. If a fire rips through a rental warehouse space and destroys all of the in-stock product, the insurance can provide coverage for the loss.

Businesses that have employees will want to consider workers’ compensation insurance, and in some municipalities this may be a requirement rather than an option. And those that use vehicles in their operations will need commercial auto insurance.

Uninsured businesses can face financial ruin from any one of the claims that business insurance will cover. The average monthly small-business insurance cost is $81, which is a reasonably low price to pay for the level of protection insurance provides. Costs will vary significantly based on the type of insurance, type and size of the business, geographic location, and deductibles.

Owners can speak with an agent who works with one of the best small-business insurance companies (such as NEXT, Thimble, or Progressive Commercial) to help determine what kind of coverage they need for their business.

Tools and Equipment

Every business requires a different collection of materials that support the operation. The cost of that equipment will vary widely depending on the type of business, but it’s a critical component of the cost to start the business.

Equipment needed to run a business can include vehicles, manufacturing equipment, furniture, tools, and consumable products that need to be replaced regularly after they’re used. Nearly every business will need computers and other technology to run smoothly.

Prior to building a start-up budget, those considering opening a business will need to determine which materials they’ll need for their business so they can calculate the costs. If the business will have employees, the owner will need to multiply the costs of different pieces of equipment by the number of employees who will need those items.


Currently, federal law dictates that businesses pay a flat 21 percent corporate income tax. Unfortunately, this tax is based on income, and since it’s incredibly difficult to predict income for the first year of a new business, this makes it very tricky for owners to budget for taxes.

Depending on how the incorporation is structured, some of those taxes may be deductible from a business owner’s personal income taxes before they pay their business tax. Those who work with an accountant or financial adviser early on can maximize potential deductions and minimize the amount of taxes paid.

How Much Does It Cost to Start a Business
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Additional Costs and Considerations

Some costs are imperative: A business can’t be started without them. Other costs are less obvious, but not less important to the success of the business. It’s important for business owners to remember to include them in their business plan or budget.

Market Research

A new business owner will need to have a certain awareness of the market they’ll be entering when they open their doors. They’ll need to know who their toughest competition will be and have an idea of their competitors’ strengths and weaknesses.

Professional market researchers can identify target demographics for customers and help business owners learn how to appeal to those customers, find the greatest and most vulnerable weaknesses of the competition, and likely point out some weaknesses in the business plan. A research firm can provide detailed data that will help set reasonable pricing so that business owners don’t over- or undervalue their services as well.

Market research can cost as little as $100 or as much as $30,000 depending on how deep the research goes and what insights the business owner is trying to gain.


With a raft of graphic design programs cropping up for free all over the internet, it’s easy to think that branding is a DIY opportunity: Just whip up a cool logo and slap the company name on top. But branding is much more than a clever logo; it’s continuity and consistency of colors, images, and fonts. Branding is voice and what makes the materials associated with a business, from advertising to invoices and packaging, look consistent, memorable, and pulled together.

There are ways other than hiring an agency to make branding less expensive. Business owners can certainly use online programs to design a logo and choose fonts and colors, then import the logo into their documents and ensure that the fonts and colors are consistent. But there’s a reason people get paid to design brands: It’s not simple, and it’s time-consuming.

Business owners can hire freelancers for less than a full agency cost, or they can hire an agency, which will provide a full range of services and do its own market research to make sure that the brand stands out from others in the industry. Hiring an agency can cost between $1,000 and $5,000, while hiring a freelancer can run between $300 and $3,000.

Developing a brand as a DIY project might be free, but new business owners need to remember that their time is money. If a long and involved graphic design program is used, it may mean that the DIY route isn’t actually free if it takes 15 hours out of the week.

Office Space and Furnishings

Will the business have a physical location? Even if the business is being run out of a room in the home, there will need to be some furnishings that make it a functional office, such as a desk, chair, meeting table, and storage.

It’s certainly less expensive to run a business out of a home, because home office space is tax deductible and doesn’t cost anything to set up other than the rent or mortgage the business owner is already paying. Otherwise, physical office space may be leased or rented at a potential cost of several thousand dollars per month. Add to that the cost of furniture and basic office supplies, in addition to any other supplies needed to run the business. All of this must be accounted for in the budget.

If finances are tight, and the business can be run without a physical location initially, doing so is a great way to save on start-up costs until the business begins to support itself.


If the business will have a physical location, the budget will need to include the cost of necessary utilities. This could include heating and cooling, electricity, water, gas, trash removal, internet access, and commercial cleaning services. Costs for the utilities will depend on the location and size of the space.


A tech-savvy business owner may be able to build and maintain their own website on a free or low-cost platform, and then maintain and update it regularly. But a business website is more than just a landing page: Professional web designers know how to fit keywords into the text that will maximize the site’s exposure to likely customers. The company’s branding and voice should be all over the page.

To start, the business will need to purchase a domain name, which usually costs between $50 and $100, and will then cost $20 each year for the business to keep the name. If a lot of website traffic is expected, it may be necessary for the business owner to pay for additional bandwidth to allow for more customers to use the site each day.

If the business will be involved with e-commerce, the page will need the build and software to accommodate the commerce. This software is often cloud-based, so business owners pay a monthly subscription fee to continue using it. This fee is generally between $30 and $299 per month based on the tools and options selected.

Marketing and Advertising

When the budget is tight, business owners can take advantage of free marketing options. This could include posting on social media or local neighborhood sites, attending local fairs and events, and putting up visible signs in the community. However, this will only get them so far. If a business owner wants to attract more customers and get more business, it’s necessary to invest in professional marketing and advertising services.

A marketing professional knows how to optimize a business’s website and social media to drive traffic and convert that traffic into real customers. Marketing pros can also come up with a strategy for paid advertising, which may include online ads, spreads in local newspapers, or even television or radio commercials.

Advertising and marketing aren’t really negotiable costs—if nobody knows the business exists, there will be no one to patronize it, and the business will ultimately fail. Marketing costs an average of 18 to 26 percent of the business’s revenue.

Employee Salaries

If the business requires employees, the first year in particular will be more expensive. Employees need to be paid, and depending on the minimum wage in the state where the business is located, this may be a significant business expense.

Employees also add cost beyond their salaries: workers’ compensation insurance and liability insurance will increase with each additional employee. Payroll makes up between 15 and 50 percent of a business’s budget, covering the cost of salaries, benefits, bonuses, time off, and insurance.

Business Registration Services

Understanding the nuances between a sole proprietorship, a DBA (which stands for “doing business as”), an LLC, a partnership, and other forms of incorporation can be difficult because there are so many details to keep track of and evaluate.

Hiring a business consultant or a lawyer to handle this particular process may be wise if there’s any confusion, and hiring someone to handle business registration shouldn’t be an expensive option.

Business Software

One of the small-business expenses that is often overlooked is the software needed to run the business. This might be design software; management, bookkeeping, and commerce software; writing programs; alarm systems; and even smart-home systems.

All of this software needs to work together seamlessly so that nothing gets missed. Costs will depend on the software a business needs for its daily operations.

Benefits of Starting a Business

When researching what it takes to start a business, an entrepreneur may feel a little nervous and wonder if it’s worth the risk and the cost. Aspiring business owners will want to take a few minutes to remind themselves why they wanted to start a business in the first place. There are many good reasons to start a business, such as the following.


When someone owns their own business, it’s not a 9-to-5 job. In some ways, owning a business can eat up more of the owner’s time than a corporate schedule. On the other hand, however, the business owner controls the schedule. This is usually a much more flexible way of working.

For example, if a child has a sports game at the same time as the staff meeting is scheduled, the business owner can reschedule the meeting and attend the game. If the business owner needs to attend a wedding out of state, they can schedule other employees to work that weekend, or simply close for a day or two.

Owning a business doesn’t mean less work, and in the beginning there may even be less flexibility because the owner is essentially on duty all the time. However, once the business is up and running, the owner has more flexibility in terms of deciding when that work gets done.

Tax Breaks

The government supports small businesses and wants to encourage their formation and success. Recognizing that starting a business is an expensive and risky endeavor, the government has put several federal plans in place to support small businesses through impressive tax incentives and tax breaks.

A business owner will still have to pay business taxes. However, if the business is set up correctly, the owner will enjoy deductions on office space, furniture, business software, mileage, travel, and a host of other qualifying purchases and expenses.

Those who aren’t up to date on these tax benefits can check with a financial planner or accountant in the very early stages of building the business plan to make sure the right steps are taken so these deductions will apply.

Financial Independence

Successful businesses are built on the hard work of their creators, and often on several years of tight financial management. There can be scary moments when it’s not clear exactly how the bills will be paid.

But once the business gets off the ground, the freedom can be truly exhilarating. Opportunities to expand and grow increase the value of the business, and the business itself has a value. If the right moment and the right offer comes along, selling the business can result in significant income for the business owner and the cash to start up another business from a position of security.

Job Security

Starting a business is risky. However, working in a corporate environment is also a risk. Although it may seem like a steadier option, there’s always the possibility of layoffs, new rules, or mergers that can make an employee worry for their job security. Owning a business, however, means the owner is in charge of their own destiny and has a better understanding of their own job security.

There’s always a possibility that a business will fail, but if it does it won’t be because a corporation decided to take cost-saving measures to improve its bottom line.

How Much Does It Cost to Start a Business
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How to Save Money on the Cost to Start a Business

Starting a business can be financially overwhelming, especially when there’s no guarantee that the business will succeed and the money recouped. Saving where possible in the beginning leaves more breathing room.

  • Look for government assistance. Entrepreneurs can seek out federal grants for small business start-ups.
  • Look for state financing. Identifying state and local sources of small-business funding can help a business owner preserve their own savings
  • Differentiate between needs and wants. An entrepreneur can save money by dividing expenses into needs, wants, and things that would be nice to have.
  • Start out small. Doing some freelance work can establish an entrepreneur in the field without the expense of starting a business.
  • Get a loan. Small-business loans or lines of credit can help a business owner set up a cash flow without endangering their personal nest egg of cash.

Questions to Ask About Starting a Business

Each individual type of business will generate specific questions. Business owners can turn to a consultant to help them navigate the answers, figure out what’s best for their situation, and use the money they have to manage the cost of starting a business.

  • How do I know if I want to incorporate?
  • How much does it cost to get an LLC in my state?
  • I have a lot of savings. Should I consider taking a line of credit or getting a business credit card? Or will those lead to overspending?
  • What kind of insurance do I need?


There are so many things to consider and keep track of when starting a business that it can all seem overwhelming. Entrepreneurs will want to educate themselves and make a complete list of expenses. Then, they can start looking for sources of income or funding to help their dream of starting a business come true. There are several questions and answers entrepreneurs can review about how much it costs to start a business to help them begin their plan.

Q. How do you get money to start a business?

Starting a business means first finding the money to start a business. Those who don’t have enough savings to take a financial leap will have to find funding elsewhere—and even those who do have savings may want to consider sourcing funding elsewhere to protect their personal finances.

First, it’s wise for business owners to carefully consider all of their planned expenses and see if any can be cut or decreased. It may be worth them consulting a professional to work through a business plan to make sure the planned budget is accurate, and to take advantage of the professional’s deep experience to run through start-up cost examples and maintenance costs.

Then, they’ll want to consider small-business funding grants and loans; having a clear-cut business plan will make these easier to secure. Finally, if the business owner is confident that the plan and finances are reasonably stable, they’ll want to consider applying for one of the many business credit cards available to take advantage of favorable rates and perks and to spread out some of the costs over months of payments instead of emptying the bank account all at once.

Q. Is it possible to start a business without money?

It’s possible, but it may require a little creativity. First, it’s worth the business owner exploring small ways to get into the business area they’re planning through freelance work, shared service areas, and pop-up or kiosk storefronts, which require less up-front cash and less financial commitment. Keeping their current position as an employee can make it easier for a would-be business owner to slowly invest in a business without losing financial stability. Taking advantage of public library resources for research, computer use, and software can also save on start-up costs.

Entrepreneurs will also want to investigate cost-sharing options with other businesses, as well as grant programs and low-interest loans to start a small business. Depending on the type of business one is trying to start, getting the business going with little to no investment may be possible. However, for more complex businesses, it may be wiser to hold out and save a little more toward the costs before leaving full-time employment.

Q. Can I have a business and be a full-time employee at the same time?

From the standpoint of state laws, yes, you absolutely can: States don’t take other employment into consideration when a business owner is forming an LLC. And in many cases, this is the ideal way to start a business—the money from the full-time job keeps things afloat while the business is getting off the ground.

Two important considerations that may get in the way are the time commitment and the policies of the full-time employer. Starting a business takes a tremendous amount of energy and time, so entrepreneurs want to think about whether they’ll be able to manage the workload of starting a business and still devote enough attention and energy to their full-time job. Additionally, some companies have policies that restrict the type of outside jobs their employees can hold while working for the company. These restrictions may have to do with time, competing interests, or ownership of ideas that the employee develops while working for the company. Therefore, it’s critical for an employee to look carefully at those policies before starting an outside business.

Sources: Shopify, NerdWallet, Foundr, Forbes, Small Business Trends, Business.com, Bankrate