Startup costs: How much does it cost to start a business?

image of a laptop and computer on a desk

Planning and preparation are the two keys to a successful new business venture. Knowing how much funding you’ll need to get your business started correctly is critical. But determining your startup costs can vary widely, making it difficult to prepare a business plan.

The cost of starting a business is not a universally defined financial figure. For the sake of planning, you can generalize and estimate your costs. Startup costs can be defined as the assets business owners need to get started, and the projected expenses it will take to launch a business. 

The stakes are high for getting a business off the ground properly—the Small Business Administration (SBA) reports that only half of all new companies survive five years or longer. However, there are steps you can take to start your new business with a strong foundation. Estimating your startup costs (so you have enough cash) is a good beginning.

How to calculate startup costs

There are two main types of business startup costs: business assets and expenses. Assets, also known as capital expenditures, are one-time costs for purchases like inventory, equipment, property, vehicles, security deposits, bank accounts, and more. 

The second startup category is business expenses. Expenses can also be one-time costs, but in most cases they’re likely to continue beyond the first year. Typical fees include business insurance, utilities, marketing, rent, and payroll. 

To estimate organizational costs, create a list with two columns. One column should be for capital expenditures and the other for business expenses. Fill in startup cost estimates and total them to get a general idea of how much you’ll need to fund your new business. SCORE provides a free Excel spreadsheet template you can download to calculate startup costs.

Organizational costs can vary widely according to industry, location, and business size. There’s no magic number, but there are categories nearly all businesses should factor in when making startup cost projections. 

Capital expenses

body content

A capital expense is the money you’ll need to purchase and maintain fixed business assets. The following capital expenditures are the most typical startup costs. For an estimate of your business asset costs, add up all the expenses below that apply. 


Equipment is a broad category that can include computers, technology, tools, vehicles, office equipment, and other items a business needs to run. Depending on your level of initial funding, leasing equipment and vehicles may be more cost-efficient than initially purchasing these types of assets.


Not all businesses have inventory. But those that do should invest wisely in inventory since product sales will be a significant income source. Along with property and equipment, inventory is usually one of the biggest expenses. To get a rough idea of how much inventory you may need, it’s best to work backward. Start with your target revenue amount and calculate how much inventory you’d have to sell in order to hit that number in sales.


Property is usually the largest expense when starting a business. Financing the purchase of real estate before the business is off the ground may be a challenge. If buying commercial property isn’t initially possible, consider leasing until the business is more established and can qualify for a commercial property loan.

Security deposits

Down payments and security deposits are considered capital expenditures or assets because they’re normally returned upon vacating the leased property.

Business expenses

body content

Startup expenses usually become recurring costs over the life of the business. Below are the most common startup expenses.

Business licenses, taxes, and permits

When starting a business, you'll need to obtain the necessary licenses and permits. Depending on the industry and locality, license and permit requirements can range from a generic business operating license to an industry-specific license.

Besides business licenses and operating permits, you'll also need to submit filings for the type of business you plan on operating—for example, an online business or a service operation. 

Filing a sole proprietorship is simpler than a corporation or limited liability company. Learn more about what types of permits and licenses your business may need from the U.S. Chamber of Commerce.


There are several types of insurance a business may need, including general liability, worker’s compensation, commercial vehicle, property, and umbrella coverage. According to business insurance provider Insureon, the average cost of small business insurance is $1,281 per year.


Marketing covers a wide variety of expenses that vary by industry. Advertising, signage, printed marketing materials, and a company website are just a few. According to the SBA, B2C companies should budget more for marketing than B2B companies. The same report details that the average marketing spending in 2018 was 7.9% of revenues.


There's a lot more to paying an employee than a salary. You'll also have to account for employment taxes, recruiting expenses, employee training, and benefits like health insurance, retirement funding, and paid leave. The Bureau of Labor Statistics reports that the total cost of employee compensation for a small business owner averaged $36.61 per hour worked.

Professional services

Small business owners usually need help in the form of certified public accountants, attorneys, and consultants to get started. While professional fees may be periodic, they still add up and should be accounted for in the startup expense estimates.

Leasing or office space

The biggest monthly expense for a new business is usually office space or a brick and mortar location. It’s also the most variable since it’s based on location and size. Leasing a space is more than the total cost per square foot—other associated costs include utilities, maintenance, and office furniture.

Depending on the type of your business and number of employees, a coworking space may be more cost-effective. Sharing space with other startups is a cheaper alternative and doesn’t come with the long-term commitment of a 5- or 10-year lease that most commercial and office spaces require.

How to fund business startup costs

Small business loans are hard to qualify for when you’re a brand-new business. Lenders prefer to work with established businesses with a track record of profitability—something most startups simply don’t have yet. Hence, the most common source of capital to finance a business is personal and family savings (21.9%). Here are other ideas on how to finance a startup.

Business credit cards

Business or corporate credit cards for startups can serve as a good cash flow source when you need to pay for inventory or a marketing campaign, for example. Cards like the Brex Corporate Card offer rewards and perks for every dollar your business spends that can later be redeemed for plane tickets or travel.


Crowdfunding connects your startup with willing investors who can contribute towards your new business. Crowdfunding sites like Kickstarter, GoFundMe, and CircleUp can give your startup a financial boost but be aware that most third-party sites charge profit-sharing, processing, and pledge fees.

Small Business Administration loans

The SBA provides small business loans for applicants with good credit. Since a startup doesn’t have a long history, the SBA will rely on the individual’s credit history and personal assets to guarantee the loan. 

How much does it cost to start a business?

It’s not easy to calculate how much it costs to start a business. There’s no specific amount of startup costs that applies to all businesses, but there are a number of business expenses that startups can list and estimate. 

When calculating how much startup money your business may need, research industry publications and associations, get cost quotes, and always estimate on the higher side to be safe. Once you have your target startup costs, you can begin to fund and manage your new venture for success.

Related Articles

blog footer
How ecommerce companies are spending their capital to run their business
blog footer
How to build business credit, raise your credit score, and get funded
blog footer
Setting Up Payroll for Your Startup
blog footer
8 terms, metrics, and KPIs that should show up in your startup pitch deck