starting a business
Suanny Garcia
By: sgarcia
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The Real Cost of Starting A Business

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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.  

A 2007 Census Data from the Small Business Administration Office of Advocacy stated that 70 percent of entrepreneurs used less than $25,000 in startup capital. 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 what it may cost to launch a business in your desired industry. Below are a few average figures of startup costs, technically meaning the costs you’ll incur before you begin making any income. Please note, these are simply averages: 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.

Average Costs of Startups

Food service

The average cost of a startup 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 are increasingly popular 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.

Retail

The average cost of a startup is $32,000. However, 42 percent of store owners reported launching with only $5,000.

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.

Construction

The average cost of a startup is $14,000, with half reportedly starting their business with less than $5,000.

There are many other industry average costs including real estate, health insurance, and transportation — for an in-depth analysis of each, be sure to refer to your local Small Business Administration Office website.

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 costs involved. But in order to calculate the final costs with accuracy, have in mind the following tips.

1. Break Down the 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 Costs

There are some costs when starting a business that many entrepreneurs often overlook. So that these may not creep up on you in the process, here are a few:

Business Insurance

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.

Taxes

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

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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, you are sure to prevent yourself added stress in the future. If you are ready to start your own business? Make sure to read this article with all the resources you need.

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