What’s the most important thing you’ll need when starting a business? Guts. What’s the second most important? Capital. Although many small business owners launch their business on a shoestring budget, sometimes it is advisable to have some sort of capital to fall back on, whether it be $10,000 or $100,000 — depending on the size of your business. So, what’s the real cost of starting a business?
A 2007 Census Data from the Small Business Administration Office of Advocacy stated that 70 percent of entrepreneurs used less than $25,000 in business start up costs. If your budget circles around that number, that’s good news to you. If not, no need to fret: 44 percent of these entrepreneurs started their business with less than $5,000.
First, let’s discuss a general idea of the business start up costs in your desired industry. Below are a few average figures of start up costs, technically meaning the costs you’ll incur before you begin making any income. Please note, these are simply averages and estimations: many business owners continued to launch their business with less than half of these average costs. Within each industry, there are many variations and no one-fits-all formula.
Business Start Up Costs
The average cost of starting a business in this category is $125,000. You can also opt to buy a restaurant franchise, which will significantly reduce your cost. A franchise is a business in which the owners, or “franchisors,” sell the rights to their business logo, name, and model to third-party retail outlets. These are owned by independent, third-party operators, called “franchisees.” Restaurant franchises usually cost $25,000 to $50,00 on a low budget. Or, you can get on the road and buy a food truck, which is an increasingly popular option in large cities such as Austin, Miami, Cleveland and Philadelphia to name a few. A food truck can cost you from $30,000 to $200,00 dollars.
The average cost of starting a business in retail is $32,000. However, 42 percent of store owners reported launching with only $5,000.
Some costs stay fairly constant whether you open a retail clothing store or sell furniture or arts and crafts. You may be required to put down a security deposit to lease space and secure utilities as well as the first month’s rent. All of this may add up to more than $3,000. Don’t forget to allow another $3,000 to $7,000 to customize the rental space, buy store fixtures like shelves and bookcases, and have in mind other miscellaneous expenses. Costs add up quickly to more than expected.
Professional, scientific and technical services (lawyers, veterinarians, accountants, architect, photographers)
The average cost of a startup is $18,000. Over 54 percent of these professionals needed less than $5,000 and fewer than 13 percent spent $50,000 or more.
To comply with state and local authority regulations, you’ll need to purchase the necessary licenses ( upwards of $1,000). When offering a professional service, it’s wise to draft and sign legal documents to operate your business as an LLC, LLP or a sole proprietor. Expect to pay at least $4,500. Additional start up costs include:
- Licensing specialized software for your service niche ($3,000-$5,000).
- Hiring someone to make professional brochures and create a website ($5,000).
- Buying office furniture, computers, and related supplies for your service ($2,000-$4,000).
The average cost of starting a business in construction is $14,000, with half reportedly starting their business with less than $5,000. In addition to hiring a lawyer to help you register your business name with the state, you’ll pay licensing fees and advertising costs ($4,000-$6,000).
Many contractors already own tools but find they need more specialized equipment when they take on larger projects. Set aside $5,000 and increase your tool budget as your business grows. Contractor’s insurance protects you and others when injured on the job site. It’s possible to bundle your business owner’s, liability, and surety bond insurances to save money ($1,000-$2,500).
Real estate agents have a passion for houses and helping people buy them. After you’ve taken the training, paid the fees ($700) and passed the exam, then you need to find a real estate broker. The broker assumes responsibility for day to day operations saving you those costs. Most brokers charge anywhere from $25-$500 per month so you can operate as an agent. Tax-related expenses include annual membership dues ($200) and marketing costs ($1,000+) for business cards, a website, and advertising your properties. Have in mind the gas money you’ll expend traveling to show properties, the lunches with clients, and costs for a home office. You should also budget for continuing education ($50-$300 per year) to stay up to date on licensing.
Providing health insurance to businesses and individuals can be a lucrative endeavor as everyone needs the protection. The cost of starting a business in this category range from $5,000-$50,000 and include these typical expenses:
- Each state requires that you take general education and ethics courses that range anywhere from $300-500 per course. Many are available online so you can progress at your own pace.
- After you’ve completed the necessary credit hours for these courses, then you can take the licensing exam for each insurance category (set aside about $50 for each exam).
- If you set up your business from home, you’ll save substantially on startup costs. For example, you won’t be paying for rent, furnishings, and additional utilities.
- You can hit the ground running by purchasing another agent’s clients. These costs are negotiated between agents and represent the bulk of your startup costs.
- Management software helps complete administrative tasks within the insurance industry. Plan on spending $50-$300 per month to access the software’s features.
If you already own a van, why not transport people to work, the airport, and other locations? You could also use the vehicle to help people move or provide services to seniors. In addition to licensing and insurance costs already mentioned for other professions, here you have a breakdown of the cost of starting a business in transportation:
- Assuming you already own your van, you’ll have ongoing maintenance expenses to service the vehicle. Budget $300-$500 per month to allow for unexpected repairs.
- Fuel gas cards mean you don’t carry extra cash to buy gas. Expect to pay $40.00 a day or more for one vehicle when your transport schedule is full.
- You’ll need business cards and fliers to hand out ($200).
- As your business grows, you may decide to set up an office. As discussed earlier, you’ll pay rent, buy furniture and office equipment, and pay other operating expenses.
How to Calculate Your Own Costs
If you have already decided the industry or field of your business, you may have a general idea of the cost of starting a business in that particular sector. But in order to calculate the final costs with accuracy, have in mind the following tips.
1. Break Down the Start Up Costs
We previously discussed the average cost of launching a business, but you will have to break the figures down to see what the cost might entail. If you plan for every sector of your business, you are less likely to run out of capital a few months down the line. Common startup costs may include but are not limited to: market research, accounting, and legal advice, statuary requirements such as license and insurance; signage and marketing; equipment fixture and fittings purchases; staffing and wages. The amount of cost may differ: for example, if you work from home you won’t incur office charges such as monthly rent or internet connection.
2. Account for These Hidden Start Up Costs
There are some expenses you’ll have to add to the cost of starting a business. Many entrepreneurs often overlook these added expenses. So that these may not creep up on you in the process, here are a few:
Is something you’ll want to consider, perhaps not right away, but early on. If you have a lot of inventory on your property, there’s a good reason to get property insurance, because anything can happen, from a fire to a flood. If there’s any risk of being sued by a customer, you probably want liability insurance. You’ll want to consult with an expert on what is the most fitting insurance for your business.
Can be an unpleasant surprise, unfortunately, and are unavoidable even for self-employed individuals.
Personal fees, permits, and licenses
You may need to hire a tax professional or lawyer to help you set up your business, and you may also need a professional to help you apply for a permit or license.
3. Other Tips & Tricks to Calculate the Cost of Starting a Business
Starting a business doesn’t need to be an overwhelming feat. By researching some tips from those who have been there, you can save yourself the added stress. Here are a few:
- Check other similar businesses: research the financial statements of any publicly listed business in your industry. Although you won’t have all the average costs they do, this will help you see what they are spending their money on, ultimately helping you deduce what is a worthwhile investment.
- Estimate ongoing vs one-time costs: be sure you estimate which costs you’ll pay month-to-month or year-to-year, and which will only be one-time payments.
- Overestimate costs. Many experts recommend adding 10% to your business cost to account for unforeseen or miscellaneous expenses. Entrepreneur.com offers a thorough and helpful startup costs calculator to help you begin.
- Essential or optional? While identifying these costs, decide whether they are essential or optional. A realistic startup budget should only include those things that are necessary to start a business.
- Fixed or variable? Establish which costs fall into which category. Fixed expenses include rent, utilities, administrative costs, and insurance costs. Variable expenses include inventory, shipping and packaging costs, sales commissions, and other costs associated with the direct sale of a product or service.
However you choose to begin your business, by planning ahead of time and allocating costs, and by being totally aware of the cost of starting a business, you are sure to prevent yourself added stress in the future. Are you ready to start your own business? Make sure to get informed about all the resources you need to start a small business.
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