Ready to turn your business idea into reality but unsure about the price tag? Let’s break down what it really costs to launch your dream.
There’s not a single number that applies to every aspiring business owner. The cost can range anywhere from a few thousand dollars to millions, depending on factors like your business type, location, and more.
However, with a bit of research, you can get a good idea of the amount you’ll need. If you’re not sure where to start, this guide can point you in the right direction. If you find you need additional capital, the best business loan lenders can help bridge the gap between your current resources and your vision.
How Much Does It Cost to Start a Small Business?
The startup costs for a small business can vary dramatically based on your industry, business model, and scale of operations. Here’s what you can typically expect to invest:
- Microbusinesses and solopreneurs: $2,000-$10,000
- Service-based businesses: $5,000-$20,000
- Online retail: $10,000-$40,000
- Brick-and-mortar retail: $50,000-$150,000
- Restaurants and food service: $100,000-$500,000
- Manufacturing: $100,000-$1,000,000+
Image Credit: Thicha Satapitanon/Istockphoto.
Key Factors that Impact Small Business Startup Costs
The overall cost of starting a business depends on a variety of expenses but it’s heavily influenced by key factors such as your location and the industry you’re entering.
- Location: Urban and high-traffic areas increase costs for rent, utilities, and taxes compared to more affordable rural or suburban locations.
- Storefront type: According to a Xero survey, 75% of experts confirm online businesses cost less to launch than brick-and-mortar stores, which require substantial physical infrastructure.
- Size: Larger initial operations demand more resources for inventory, facilities, and staffing, while starting small and scaling gradually reduces upfront costs and risk.
- Industry: Manufacturing, hospitality, and healthcare businesses require specialized equipment, extensive inventory, and unique permits, while consulting or digital services need fewer upfront resources.
- Inventory requirements: Your starting inventory (raw materials, works in progress, and finished goods) directly impacts costs—more inventory means higher startup expenses.
Image Credit: SeventyFour/Istockphoto.
Online Business vs. Brick-and-Mortar Stores
The business model you choose significantly impacts your startup costs. Here’s how online and physical businesses compare:
Online Business Startup Costs
- Domain and hosting: $50-$300/year
- E-commerce platform: $0-$300/month
- Website design: $500-$5,000 (or DIY with templates)
- Payment processing: 2.5-3% per transaction
- Inventory management software: $0-$200/month
- Digital marketing: $500-$3,000/month
- Home office setup: $500-$2,000
Total typical range: $2,000-$20,000
Image Credit: JLco – Julia Amaral/istockphoto.
Brick-and-Mortar Business Startup Costs
- Lease deposit and first month’s rent: $2,000-$10,000
- Utilities deposits: $500-$2,000
- Building renovations: $5,000-$50,000+
- Fixtures and equipment: $10,000-$30,000
- Signage: $500-$5,000
- Point-of-sale system: $1,000-$5,000
- Initial inventory: $5,000-$25,000
- Insurance premiums: $1,000-$5,000
- Local marketing: $1,000-$5,000
Total typical range: $25,000-$150,000
Image Credit: Ridofranz/istockphoto.
Average Cost by Industry
Different industries have unique cost structures and requirements. Here’s a breakdown of average operating costs by industry from the US Census Bureau:
Business Type: Motor vehicle and parts dealers
Total Estimated Annual Operating Expense (2022): $215,697
Business Type: Grocery stores
Total Estimated Annual Operating Expense (2022): $193,651
Business Type: Health and personal care stores
Total Estimated Annual Operating Expense (2022):$91,143
Business Type: Clothing stores
Total Estimated Annual Operating Expense (2022): $71,145
Business Type: Furniture stores
Total Estimated Annual Operating Expense (2022): $32,271
Business Type: Shoe store
Total Estimated Annual Operating Expense (2022): $15,193
Business Type: Beer, wine, and liquor stores
Total Estimated Annual Operating Expense (2022): $14,339
Image Credit: gorodenkoff/istockphoto.
How to Calculate Your Startup Costs
To determine your startup costs:
- Research your business needs and create a comprehensive list of all expenses.
- Split these expenses into one-time and ongoing costs (examples below).
- Research each item’s cost by comparing prices online, requesting quotes from multiple vendors, and negotiating—many suppliers offer discounts for new businesses or bulk purchases.
- Compare your findings with industry benchmarks to ensure you’re getting good deals.
According to the SBA, your startup cost calculation should include all one-time costs plus at least one year of monthly expenses. You can also check out the SBA’s template for startup costs.
Image Credit: Ridofranz/istockphoto.
Types of Costs for Your Small Business
When planning your business expenses, it’s helpful to categorize costs based on their function and how they relate to your business structure.
Operational Costs
These are the day-to-day expenses required to keep your business running:
- Facilities: Rent/lease payments, utilities, maintenance, cleaning
- Equipment: Machinery, computers, phones, furniture
- Inventory: Product stock, raw materials, packaging
- Technology: Software subscriptions, internet, cloud storage
- Supplies: Office supplies, production materials
Image Credit: Dan Rentea /istockphoto.
Marketing and Sales Costs
These costs help you reach and convert customers:
- Website: Development, hosting, maintenance
- Digital marketing: SEO, PPC advertising, social media management
- Traditional marketing: Print materials, signage, direct mail
- Brand development: Logo design, brand guidelines, visual identity
- Customer acquisition: Sales tools, CRM software, lead generation
Image Credit: Ekkasit Jokthong/Istockphoto.
Legal and Administrative Costs
These expenses ensure your business operates legally and efficiently:
- Business formation: Registration fees, licenses, permits
- Professional services: Legal counsel, accounting, bookkeeping
- Insurance: General liability, professional liability, property
- Intellectual property: Trademarks, patents, copyrights
- Compliance: Industry-specific regulations, data security
Image Credit: BongkarnThanyakij/Istockphoto.
Staffing Costs
Personnel-related expenses often represent the largest category for many businesses:
- Compensation: Salaries, wages, commissions, bonuses
- Benefits: Health insurance, retirement plans, paid time off
- Taxes: Payroll taxes, unemployment insurance, workers’ compensation
- Training: Onboarding, professional development, certifications
- Recruitment: Job postings, background checks, hiring services
Image Credit: JLco – Julia Amaral/istockphoto.
Costs by Business Structure
- Sole Proprietorship: Lower registration costs, self-employment taxes, and personal liability insurance.
- LLC: Formation fees ($50-$500 depending on state), operating agreement, liability insurance.
- Corporation: Higher formation costs ($500-$1,000+), board governance, more complex tax filings.
Image Credit: Andrii Lysenko/Istockphoto.
Essential Costs vs. Optional Costs
Understanding which expenses are absolutely necessary and which can be delayed can help you prioritize your startup budget and avoid cash flow problems.
Essential Costs:
- Business registration, licenses, and permits
- Basic liability insurance
- Core equipment needed to deliver your product/service
- Essential software/technology
- Minimal inventory to fulfill initial orders
- Basic website or online presence
- Tax ID numbers and basic accounting system
- Initial marketing to reach first customers
Image Credit: Inside Creative House/istockphoto.
Optional Costs (Scale Later):
- Premium office/retail space (consider shared space initially)
- Advanced equipment upgrades
- Premium software packages
- Large inventory stockpiles
- Extensive branding and marketing campaigns
- Additional staff (consider contractors initially)
- Company vehicles
- Extensive office furniture and decor
- Premium business services
Image Credit: Prostock-Studio/istockphoto.
Fixed Costs vs. Variable Costs
Fixed Costs
Fixed costs remain relatively constant regardless of your business activity level. Some examples include:
- Rent/mortgage
- Insurance premiums
- Loan payments
- Salaried employees
- Subscriptions and memberships
- Base utilities
- Equipment leases
Pro tip: Lock in the best deals when you first sign up, since you’ll be paying these bills even when business is slow. Check your contracts once a year to see where you might save money. Managing these ongoing expenses will help you survive small business debt if you need to borrow.
Image Credit: SeventyFour/istockphoto.
Variable Costs
These expenses fluctuate based on your business activity. Examples include:
- Inventory
- Shipping and packaging
- Credit card processing fees
- Hourly labor
- Commissions
- Utilities tied to production
- Raw materials
- Marketing spend
Pro tip: Adjust these expenses as your business needs change—increase them when you’re busy and cut back during slow seasons or tough economic times.
Image Credit: fizkes/istockphoto.
Average Small Business Costs
While specific costs vary by industry, here’s a general breakdown of what most small businesses can expect to spend in their first year:
Solopreneur/Microbusiness (1 person)
- Startup costs: $2,000-$10,000
- Monthly overhead: $1,000-$3,000
- First-year total: $15,000-$40,000
Small Team (2-5 employees)
- Startup costs: $10,000-$50,000
- Monthly overhead: $5,000-$15,000
- First-year total: $70,000-$200,000
Here’s how a typical small service business with 2-3 employees might break down their first-year expenses:
Rent/facilities
Amount $12,000
Employee compensation
Amount $30,000
Equipment/technology
Amount $8,000
Marketing/advertising
Amount $6,000
Insurance
Amount $4,000
Professional services
Amount $5,000
Utilities/communications
Amount $3,600
Supplies/materials
Amount $3,000
Taxes/licenses
Amount $4,400
Miscellaneous/contingency
Amount $4,000
TOTAL $80,000
The first year of business can be challenging, as you’re fighting an uphill battle to establish yourself in the market. According to the US Bureau of Labor Statistics, about one in five businesses that opened in March 2023 closed down within one year.
However, you can improve your odds of success by estimating your costs as accurately as possible and building in a financial buffer to bridge any unexpected gaps.
According to Rohit Arora, chief executive officer of Biz2Credit, entrepreneurs should “create a professional business plan that outlines startup costs for all of these things and then double it. The reason? Inevitably there will be setbacks, delays, and mistakes that can become quite costly. It’s important to have cash on hand to cover these occurrences.”
Image Credit: Javier Zayaz/Istockphoto.
Key Small Business Cost Statistics
- The US Small Business Association (SBA) offers Microloans up to $50,000 to help small businesses start and grow. The average loan amount is $13,000. (SBA)
- A 2024 Shopify survey found that, on average, entrepreneurs and small business owners spent approximately $40,000 during their first full year in business. (Shopify)
- FreshBooks reports that startup costs for online businesses in 2025 typically range from $1,000 to over $60,000, depending on business type and scope. (Freshbooks)
- Xero found that 80% of business owners say starting an online retail business is more affordable than opening a brick-and-mortar store, with 70% saying the same about service-based businesses. (Xero)
Image Credit: fizkes / istockphoto.
Bottom Line: Get Your Dream Started
Estimating small business startup costs can be challenging, but careful planning can improve your odds of success. By understanding the costs involved, securing funding, managing expenses, and searching for the best business loan lenders, you can position your business for long-term growth and profitability.
- Related: 11 Common Tax Scams & How to Avoid Them
- Related: Personal Loan vs Business Loan – Which is Right for Your Business?
This article originally appeared on Bestmoney.com and was syndicated by MediaFeed.org
Image Credit: JLco – Julia Amaral/istockphoto.
