Small Business Start-Up Costs
Before getting your business off the ground, it’s essential to understand and prepare for the kinds of start-up costs you’re facing.
Whether you’re still hashing out your small business concept or getting ready to make some moves, no matter what stage you’re at, it’s crucial to wrap your head around just how much money you need to get your business up and running.
Sure, you might have thought about the cost of renting a space or purchasing equipment, but a lot more goes into operating a successful business—not to mention that even the small expenses eventually tally up. That’s why creating a budget as part of your business plan should be at the very top of your small business goals.
Understanding your incoming and outgoing costs helps you identify how much you need to bring in to make ends meet. In addition to helping you estimate your revenue and profit, it can also help you differentiate your one-time expenses from your recurring expenses.
To get a better handle on the kinds of business start-up costs you may be facing, check out our guide below.
What Is the Estimated Cost to Start a Small Business?
So, how much does it cost to start a business? Well, a lot goes into determining the estimated cost of starting a small business, and the total expense will vary from one business to the next. For example, your business type, location, inventory, liability, and the number of employees are just a few of the many aspects that will factor into your budget.
While we can’t give you an exact estimate of what you’ll need to set aside for your small business, we can highlight some of the expenses you’ll be responsible for and examples of how much they might cost you.
Follow along to discover some of the most common business start-up costs.
Office or Rental Space
Varies based on size and location
Of course, how much you pay each month depends on how much space you need, the kind of space you need, and where you want your business. For example, a small coworking space will cost a whole lot less than a restaurant with a full kitchen and dining area—in the same way rental space in Ohama will cost less than real estate in downtown Manhattan.
That said, you can expect to pay several hundred or several thousand dollars monthly on your rental space. Shop around the spaces for rent in your area to get a feel for the going rate.
~$2 per square foot per month
No matter what kind of small business you’re starting, you’ll need to factor in the cost of utilities if you have a physical location. This includes water, electricity, and natural gas.
On average, the cost of utilities in a commercial space is $2.14 per square foot. Therefore, if you have a compact space of around 500 square feet, you’ll likely pay around $1,070 a month, while a 1,000-square foot space would cost double, at $2,140.
While you’re considering utilities, don’t over internet access, which is a separate utility cost. For business internet service, you might spend anywhere from $50 to $300 a month, depending on your specific needs and preferences.
~Up to 50% of your total budget
Your payroll expenses are another hefty business start-up cost to include in your budget.
As a small business owner, you want to offer competitive rates to keep your employees happy. But of course, you also need to ensure you’re making a healthy profit first.
Your profit margins will help determine how much you can afford to pay your employees, but most successful business owners set aside anywhere from 15 to 50% of their budget to pay salary and wages. While calculating these costs, don’t forget to factor in other aspects like benefits, bonuses, paid-time off, and overtime pay.
Equipment is another start-up cost for some small businesses. Again, what kind of business you’re running will determine the kind of equipment you need and what it’ll cost.
For instance, if you’re starting a tech company, you might need a handful of laptops, computer monitors, printers, desks, and chairs for your employees. But if you’re opening a pizza joint, you’ll need the whole nine yards, from brick pizza ovens, industrial stoves, and dishwashers to dishware and dining room tables, chairs, and bar stools.
For some startups, equipment might only be a few hundred dollars, but for others, it could be several thousand—or even hundreds of thousands—dollars. Luckily, a lot of your equipment expenses will be a one-time purchase, but by no means does that mean you shouldn’t factor them into your budget.
If your business is selling a product, you’ll need to add inventory to your list of business start-up costs. Like equipment, the cost of your inventory comes down to your specific business operation.
To help with your estimates, determine the total cost of how much inventory you’d like to sell within a year, and then divide that number by 10 to figure out how much it will cost you to keep 10% of your inventory in stock. For example, if you’d like to sell $50,000 in inventory in the next 12 months, it’s recommended that you keep $5,000 worth of inventory on hand at all times.
Business License & Incorporation Fees
Business license and incorporation fees are some of the low-cost start-up business expenses that often get overlooked. While they’re not always ultra-expensive, it’s still important to be mindful of them.
Depending on the type of business you’re running and the state you’re operating in, you may need to purchase a business license. Business license costs vary by state—some cost as low as $10 a year, while others charge over $100.
As for incorporation fees, they refer to the cost of forming a business entity, such as a sole proprietorship, partnership, corporation, or limited liability company. Again, the cost of applying will vary by state. For example, the cost to form an LLC company in California is $1,180 but only $560 in the state of Florida.
~15 to 30% of your business profits
When you’re just starting your business, tax season may seem far in the distance, but it’s essential to keep track of your expenses and anticipate paying taxes. How much you pay in taxes will ultimately depend on your business structure, location, revenue, and expenses. While each business is different, experts recommend setting aside 15-30% of your business profits to cover your taxes.
Keep in mind, some of your start-up costs for business may be tax deductible. So, what business start-up costs are tax deductible? What qualifies for a deduction and how much you can receive depends on several factors, such as your taxable income, W-2 wages your business pays, and the type of business you operate.
~Under $100 per policy per month
Your start-up business insurance costs can quickly rack up if you’re not prepared for them. It’ll depend on the type of business you’re operating, but you may need to fork out monthly payments for general liability, professional liability, and worker’s compensation. You might also want to consider health and dental insurance for you and your employees.
The cost will vary based on how many employees and policies you need, but you might be able to bundle them to save money. That said, we recommend budgeting for at least $100 per policy per month.
~Under 10% of your budget
Don’t forget about your marketing costs. These expenses go toward getting your business on the map. How you develop your marketing strategy is up to you, as there are many ways to go about it.
For example, you might purchase paid ads to show up on Google search pages or billboard ads for the side of the road. Or, you could go with SMS marketing, which is a low-cost way to build your brand through business texting. For example, with EZ Texting, some plans are as low as $19/month, while unlimited plans start at $299/month, allowing you to customize your package based on your needs and budget.
Especially if you’re new on the scene, it’s a good idea to combine different marketing efforts to get the word out about your business.
As you can see, starting your own business isn’t always a low-cost endeavor. However, that doesn’t mean you need all that cash upfront. That’s where funding comes into play. As a startup business, you may qualify for a business loan, which can help relieve some of those initial financial burdens. There are many different kinds of loans available, such as microloans, SBA loans, lines of credit, and more.
While a loan might sound like music to your ears, remember, it’s not free. You are expected to pay back that money along with the associated interest. Once you’re approved for a loan, your lender will provide you with specific information regarding how much you owe.
For reference, the current average SBA loan interest rate is 5 to 8.8%. So, if you get an SBA loan for $10,000 this year, you’d owe that initial $10,000 plus somewhere between $500 and $880 over time.
Varies by hour
When starting your business, you don’t have to go at it alone. From accountants to lawyers, so many professionals can help make sense of it all for you. Find someone to help you navigate your finances, file your taxes, or advise you on what kind of insurance to purchase.
Depending on the service and individual you go with, you may spend a few hundred dollars an hour, but the advice you receive will be invaluable.
How EZ Texting Helps Start-Up Businesses
You’ve probably heard the phrase, “You’ve got to spend money to make money,” and that’s just the case when it comes to SMS marketing. While it does cost a small fee, implementing an SMS marketing strategy is a surefire way to raise awareness about your business and attract customers. Paying a low monthly subscription for SMS service can make a huge impact on your small business, helping you promote your business and increase customer retention.
And perhaps the best part of all is that at EZ Texting, we offer a wide range of pricing packages, so your plan doesn’t have to break the bank. Contact us today to see how you can add SMS marketing to your small business start-up costs.
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