How much does it cost to start a new business?

You need to spend money to make money — but just how much depends on the type of business you’re looking to start, on top of other factors. Estimating the different costs you might incur can help you apply for financing that truly meets your startup’s needs.

How much does it cost to start a new business?

It costed around $31,000 to start a business, according to a survey by the Ewing Marion Kauffman Foundation. How much you actually pay depends on your business type, where you’re located and the equipment and supplies you’ll need to get up and running. For example, it will cost much more to start a new restaurant than it will to start a freelance photography business out of your home.

How to calculate startup costs for a small business

Calculating the cost for a startup is relatively simple — you just need to add your estimated expenses together to get a full picture of what your budget should look like. The Small Business Administration (SBA) has a helpful worksheet you can use to calculate the funds required to start your business.

8 common startup costs

While your specific costs will vary, these are the eight most common factors to consider when deciding how much you’ll need to borrow:

1. Registering your business: $50 to $725

In most states, registering your business as an LLC, C corporation or S corporation costs under $300. But licensing and permit costs can vary, so it’s best to meet with an accountant and attorney to guide you through the process. Just be sure to work their fees into your budget as well.

2. Office space: $4,000 to $15,000 per employee

Renting or buying office space is typically one of the larger fixed expenses your new business will face. On average, you can expect to pay $4,000 to $15,000 per employee every year. Looking at it another way, that’s around $330 to $1,250 per employee each month. To reduce this cost, you may want to consider working from home or out of a coworking space for those first few months you’re just getting started.

Once you’re ready to expand into an office, take the cost of rent, utilities and taxes into account as well as any changes you plan on making to the layout of the office. The rent you pay will largely depend on where your business is located. While larger cities are often more expensive, they may offer more amenities and potentially easier access for your employees.

3. Equipment and supplies: Varies

The equipment and supplies you need will vary greatly depending on the type of business you plan on opening. Because of this, it’s critical to do your research. A specialty bakery may need upwards of $60,000 in equipment between proofing cabinets, ovens and mixers. But a startup graphic design firm may just need closer to $6,000 for a desk, chair, high-end tablet, stand and laptop.

You’ll likely need to finance some of your equipment, so prepare a budget and a solid business plan so you can present it to lenders. And if you plan on hiring a few employees, keep in mind they’ll need their own equipment and supplies, too.

4. Inventory: Varies

You’ll have no concerns about inventory if you provide a service. But any business involved in retail or manufacturing will need to calculate their inventory costs.

To create a budget, work backward from your revenue goal. Use the price you plan on selling your inventory at and how much you realistically plan on selling in a year to help guide you.

5. Employees: 25% to 50% of your budget

Payroll should cover more than just an hourly salary. Consider benefits, employment taxes, commissions, overtime pay and bonuses when calculating your startup budget.

Because it varies widely across the country and by industry, there’s no set number to keep in mind. Instead, you should be prepared to dedicate a significant portion of your budget to payroll at first.

Remember: You also need to be paid, so be sure to account for your own wages when determining employee costs.

6. Insurance: Around $1,280 per year

The average cost of business insurance is $1,281 per year, according to a 2017 survey by business insurance provider Insureon. However, this data is based on policies serviced solely by Insureon. Your costs will likely vary depending on where you’re based, your business’s risk profile and the provider you choose.

When comparing business insurance providers, you might want to look into these four types of coverage depending on the industry you’re in:

• Product liability
• General liability
• Professional liability
• Workers’ compensation

7. Website and marketing: Less than 10% of your budget

If you plan on using an online platform like WordPress, Wix, Squarespace or Weebly, you’ll likely only need around $30 to $40 per month to register a domain and create a website for your business. As for marketing, most of these costs can be reduced by simply using social media and other free brand-building platforms. If you want to create flyers, buy ad space on Facebook or print business cards, limit your expenses to 10% of your budget.

8. Taxes: At least 21% of revenue

If your business is registered as a corporation, you should expect to pay the current federal corporate tax rate of 21% of your revenue and any corporate taxes charged by your state. If your business is registered as a sole proprietorship, LLC or partnership, your taxes will be accounted for in your federal and state income taxes.

The costs can get tricky, though. Rather than calculating them on your own, contact an accountant to ensure your business is following all regulations. It can help save time and money now — and some headaches down the road.

See top business loans options

Start comparing business lenders to get an idea of how much you can borrow.

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Name	Product	Filter Values	Loan amount	APR	Requirements
First Down Funding business loans			$5,000 – $300,000	Fee Based	At least 1 year in business, an annual revenue of $100,000+, and a minimum credit score of 400	Alternative financing up to $300K with highly competitive rates.	Check eligibility More Info		loading Fetching your data…
Lendio business loans			$500 – $5,000,000	Starting at 6%	Operate business in US or Canada, have a business bank account, 560+ personal credit score	Submit one simple application to potentially get offers from a network of over 300 legit business lenders.	Check eligibility More Info		loading Fetching your data…
ROK Financial business loans			$10,000 – $5,000,000	Starting at 6%	Eligibility criteria 3+ months in business, $15,000+ in monthly gross sales or $180,000+ in annual sales	A connection service for all types of businesses — even startups.	Check eligibility More Info		loading Fetching your data…
OnDeck small business loans			$5,000 – $250,000	As low as 11.89%	600+ personal credit score, 1 year in business, $100,000+ annual revenue	A leading online business lender offering flexible financing at competitive fixed rates.	Check eligibility More Info		loading Fetching your data…
Rapid Finance small business loans			$5,000 – $1,000,000	Fee based	Steady flow of credit card sales, bad credit OK	Check eligibility More Info		loading Fetching your data…
Fundbox business loans			$1,000 – $100,000	4.99	You must have an established business.	Get flat rate, short-term financing based on the financial health of your business, not your credit score.	Check eligibility More Info		loading Fetching your data…
Kickpay e-commerce business loans			$20,000 – $1,000,000	Not applicable	At least $250,000 in the past 12 months of revenue, e-commerce business, use a 3rd party fulfillment center for storing and shipping inventory, at least one US location.	Get a loan for your e-commerce business based on your sales history.	Check eligibility More Info		loading Fetching your data…
LendingClub business loans			$5,000 – $500,000	12.15% to 29.97%	12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better	With loan terms that vary from 12 to 60 months, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.	Check eligibility More Info		loading Fetching your data…
Monevo business loans			$500 – $100,000	3.99% to 35.99%	Credit score of 500+, legal US resident and ages 18+.	Use this connection service to get paired with a loan you can use for business.	Check eligibility More Info		loading Fetching your data…

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How can I pay for initial startup costs?

While your options are limited compared to businesses that have been around for a while, you still have a few ways to finance your startup:

• Equipment loans. If your business requires equipment to get up and running, equipment loans allow you to buy necessary machinery.
• Business credit cards. To help build your business’s credit and finance smaller startups costs, you may want to compare a few of the leading small business credit cards. Some even offer 0% intro APRs for the first year — giving you some breathing room to pay off expenses slowly over several months.
• Personal loans. Some banks and online lenders allow you to use a personal loan for business expenses. However, you’re typically limited to borrowing $50,000 or less.
• SBA loans. If you’ve exhausted all other options, you might want to look into a government-backed loan from the SBA. These are small loans up to $350,000 with competitive rates and terms. But the application process can be long, so expect this to take a few months from start to finish.

Bottom line

From equipment and inventory to payroll and office space, funding the cost of your startup can put a huge dent in your personal finances. Before you dig into your savings, compare business loan options that might work for your new company.

Frequently asked questions