Guest Blog: Startup expenses: How much does it cost to start a small business?

Feb. 16, 2024
Start-up expenses are influenced by factors such as the nature of the business, its location, labor and equipment requirements, inventory expenses, overhead costs, and additional considerations.

There is no one answer to that question. Start-up expenses are influenced by factors such as the nature of the business, its location, labor and equipment requirements, inventory expenses, overhead costs, and additional considerations.

List your launch costs

The best time to determine start-up expenditures is when researching a business plan. Maintaining positive cash flow is critical to knowing, tracking, and managing your company’s expenses. Underestimating start-up costs can get a business off on the wrong foot, endangering the company’s survival.

Lack of cash flow and planning are two primary reasons businesses fail. You can avoid this by researching your setup costs, planning how to operate your company, and keeping track of your operating expenses.

Start by listing everything you’ll need, such as the estimated associated costs and where you plan to purchase. It’s essential to comparison shop, not overspend, but not skimp when appropriate.

Making your initial investments

Before opening your company, you'll need to make the initial investment, which covers formation, legal and accounting fees, insurance, the costs of developing a business plan, scouting a location, and other related expenses. After opening, you'll face ongoing costs such as marketing, labor, overhead, and additional expenses. It's essential to have sufficient operating capital to support these financial needs.

Here’s a quick overview of your potential start-up expenditures. Knowing your needs helps you develop your launch budget.


The rent, permits, and other expenses can vary greatly depending on the required space size and location. Generally, home-based businesses have lower initial and ongoing expenses compared to traditional brick-and-mortar establishments. When calculating start-up costs, remember to factor in utilities alongside rent. While rent remains constant, utility bills fluctuate throughout the year.

Business licenses and permits 

The expense associated with obtaining business licenses and permits fluctuates based on both your geographic location and the specific industry you operate within. Various types of permits are required, such as seller’s, zoning, and health permits for businesses dealing with food products.

Accounting fees

While hiring an accountant may entail an upfront cost amounting to thousands of dollars, it has the potential to yield significant savings in the long run. An accountant plays a crucial role in establishing an effective accounting system, monitoring your financial inflows and outflows, managing payroll, and preparing tax documentation.

Legal fees

Before you open, you’ll need to choose a business structure. The most common are sole proprietorships, partnerships, corporations, and limited liability companies (LLCs). The costs and regulations vary by state.

While engaging a lawyer for these tasks is not mandatory, their involvement in drafting foundational documents, such as an operating agreement for an LLC or bylaws for a corporation, can safeguard your personal assets and enhance your company's security. Moreover, lawyers play a crucial role in ensuring compliance with local, state, and federal regulations, including employment laws, and they provide valuable expertise in drafting and reviewing contracts and other legal documentation.

Marketing and advertising

Ensuring your website is fully functional at launch is crucial. The cost of development can range from a few hundred dollars to several thousand, depending on the complexity and required features of the site. It's also essential to allocate funds to cover expenses for a web host.

Additionally, having a logo ready for your website, shop signage (if applicable), and marketing materials such as brochures, flyers, business cards, mailers, and promotional items is necessary at launch.

Effective advertising is paramount for attracting customers. Conduct research to determine which advertising outlets are most effective for reaching your target market, whether it's online, print, radio, TV, email, text or various social media platforms.

Business supplies, furniture, and equipment

Consider whether you'll require office furniture or store fixtures and determine the quantity needed. Assess your technological needs, including the number of computers, printers, tablets, phones, copiers, scanners, cash registers, routers, etc., required for operations. Additionally, don't forget about basic supplies such as paper, pens and desk equipment like staplers.

Some businesses may necessitate specialized equipment. Evaluate whether leasing or purchasing is the better option, but carefully review the lease terms before committing. Exploring all available options is essential, as leasing may not always be the most advantageous choice in the long run.


If you are selling products, you’ll need to purchase inventory. You have the option to procure inventory either through wholesalers or directly from manufacturers. Regardless of your startup status, it's prudent to establish a diversified supply chain to mitigate risks and ensure consistent access to the necessary goods.


Beyond basic technological requirements, consider whether specialized information systems or point of sale (POS) software are necessary for your operations. Additionally, assess your needs for tools related to social media management, search engine optimization (SEO), and graphic design, depending on your marketing strategy and online presence goals. Furthermore, most businesses benefit from implementing customer relationship management (CRM) software to manage interactions with customers and prospects efficiently.


If you anticipate needing employees upon launch, it's crucial to factor in the costs associated with wages, benefits, and payroll taxes. This includes not only the salaries or hourly wages you'll be paying your employees but also any additional benefits such as health insurance, retirement plans, paid time off, and other perks, as well as the corresponding payroll taxes required by law. Properly accounting for these expenses ensures that you're prepared to meet your financial obligations and properly compensate your staff from the outset.


Insurance plays a crucial role in safeguarding your business. At a minimum, startups should secure basic insurance coverage, although costs can vary significantly based on factors such as location, industry, coverage needs, and business size. Various types of business insurance are available, with most coverage options being optional; these include:

  • General liability
  • Business owner's policy (combining general liability and property coverage)
  • Cybersecurity
  • Commercial auto (if your business utilizes company vehicles)
  • Directors and officers' insurance
  • Professional liability (errors and omissions)
  • Business income
  • Workers’ compensation (typically mandatory in most states)

By assessing your specific risk factors and business requirements, you can determine the most suitable insurance coverage to protect your startup effectively.

When charting your start-up expenses, it's important to consider a wide range of factors beyond the obvious costs. Some additional expenses to consider include:


When applying for a bank loan, it's important to identify the assets you can use as collateral and estimate their worth. Banks often require borrowers to provide collateral to secure the loan in case of default. Examples of collateral include:

  • Tangible assets: Real estate properties, equipment, vehicles, and inventory.
  • Financial assets: Cash held in a certificate of deposit (CD) that is linked to the loan, investment accounts, and accounts receivable.
  • Personal guarantees: Assets such as your home or personal vehicles may be used as collateral, although this carries significant risk.
  • By listing and valuing these assets, you can provide the necessary assurance to the bank and increase your chances of securing the loan.


After estimating the capital required to launch your venture, it's imperative to identify the sources from which the funds will be obtained and understand the terms of repayment, including any associated interest. Potential sources of funding include:

  • Self-capitalization: Utilizing your own funds to finance the startup.
  • Contributions from friends and family.
  • Investment from external investors.
  • Capital injections from business partners.
  • Borrowed funds from banks or alternative sources, such as credit card advances.

It's essential to thoroughly evaluate the terms and conditions of each funding option to make informed decisions about the most suitable sources for your startup's financial needs.

Working capital

Working capital is cash you can readily access to pay bills, purchase inventory, cover operating expenses, and meet financial obligations. Your goal is to have enough working capital as you grow because it enables you to:

  • Covering daily expenses: Ensuring smooth operations by having sufficient funds to meet daily financial commitments without disruptions.
  • Seizing business opportunities: Being prepared to capitalize on unexpected opportunities that may arise, such as advantageous investments or strategic partnerships.
  • Maintaining supplier relationships: Timely payment to suppliers helps build good credit and potentially leads to negotiating better terms and discounts.
  • Demonstrating financial stability: A healthy working capital position showcases your business's financial stability and resilience, instilling confidence in stakeholders, including investors and creditors.

Monitor your working capital so you can make adjustments as needed. To estimate your working capital needs, consider creating a 12-month cash flow projection and updating it regularly.


Business ownership is unpredictable—the unexpected can strike at any moment, potentially jeopardizing your financial stability. That’s where a contingency fund can help.

A contingency fund helps you survive emergencies, like equipment breakdowns, property damage, etc., withstand economic downturns or sudden shifts in consumer behavior impacting sales, and take advantage of opportunities like buying discounted inventory or acquiring a competitor. 

Tapping your contingency fund instead of your bank account or credit cards helps preserve cash flow and maintain operations until things stabilize.

Experts recommend setting aside 10 to 20 percent of your budget as a contingency fund. To help build your fund, set up recurring transfers from your business account.

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