The cost of starting a business can range from a few hundred dollars to tens of thousands or more, depending on what you’re building. That’s why there is no single response to how much money it takes to start a business. 

Entrepreneurs are best served by understanding the specific costs of their business model and by creating a realistic plan before they launch.

Startup and Ongoing Costs Depend on the Type of Business

Startup and ongoing costs can vary dramatically based on how a business operates.

Service-based businesses, including those where you can work from home, such as a consultant or freelance writer, can be the least expensive to launch. It might take just a laptop, software subscriptions, licensing fees, marketing materials, and a website to get started.

Brick-and-mortar businesses generally face higher costs. They require renting space, equipment, utilities, furniture, and inventory. Most of these are recurring costs. Restaurants, retail stores, and fitness studios may have substantial upfront capital requirements before opening their doors, in addition to ongoing expenses for inventory and staffing.1

Franchises, which allow you to start and run a business under an established name with built-in customer recognition, may offer a proven business model. But franchise fees, build-out costs, ongoing royalties, and advertising costs may significantly increase expenses.2

According to a survey from Business.org, online-only business owners spend an average of $35,000 during their first year of business. At the same time, mobile businesses and storefront businesses spend an average of $92,500 and $100,000 during their first year, respectively.3

Personal Experience

As a small business owner myself, I’m familiar with how business expenses work. I started and run my own service business, a mobile notary and apostille service, where I travel directly to people who need documents notarized.

Like most service-based businesses, my initial startup costs were minimal. I spent about $500 on study materials, the exam, and licensing fees to become a notary public, plus initial website setup.

As for recurring expenses, I spend up to $80 a month on public transit and bike sharing to get to and from client appointments. I also pay for software to track expenses and deductions, accounting fees, and liability insurance, which runs me about $1,800 to $2,000 per year combined.

All in, it costs me roughly $2,700 to $3,000 to run my business, which is a small figure compared to what it would cost to run a local brick-and-mortar business nearby.

Tip

Focus on your business model rather than industry averages. Two businesses in the same industry can have vastly different startup costs depending on their scale, location, and growth plans.

Common Expenses

While every business is different, many startups encounter similar expense categories.

One-time expenses such as business registration, permits, and licenses are often among the first costs entrepreneurs face, and requirements can vary by state, city, and industry.45 The U.S. Small Business Administration (SBA) recommends calculating and identifying all of your startup expenses before launching a business.6

There are also many ongoing costs to consider, like inventory, equipment, technology, rent, taxes, utilities, and payroll. 

On top of that, digital advertising, social media campaigns, and professional services like legal advice and accounting support may also be needed.

The same Business.org survey indicated how first-time business owners typically spend their money in the first year of business, broken down by category:3

• 30% on inventory
• 21% on equipment
• 15% on location 
• 12% on taxes
• 7% on utilities
• 6% on payroll

Understanding the differences is critical when building a startup budget.

Warning

Many entrepreneurs may focus heavily on launch expenses and underestimate recurring costs. Monthly expenses can often have a greater long-term impact on cash flow than one-time startup purchases.

Don’t Forget Working Capital

One of the most common mistakes new business owners make is spending all available funds to get the business off the ground, leaving insufficient cash to operate afterward.

Working capital refers to the money available to cover ongoing business expenses and day-to-day operations.7

Even profitable businesses can experience cash-flow challenges if revenue arrives more slowly or unevenly than expected. 

Customers may pay late, sales may fluctuate, or unexpected expenses may arise. That’s why it’s always important to maintain a cash cushion after starting your business.

Tip

While my overhead expenses are low, I always maintain a cash cushion to fund regular business expenses since revenue fluctuates from month to month. My accountant still has to get paid regularly, and my business insurance comes due regardless of what I earn in any given month.

How To Estimate Your Startup Costs

Estimating startup costs does not require a complex financial model, but it does require careful planning.

Start by creating a comprehensive list of every expense that applies to your type of business. Factor in licensing fees, equipment, technology, inventory, marketing, insurance, rent, utilities, and professional services, such as accounting and legal.

Next, separate must-have expenses from nice-to-have purchases. You may discover you can start smaller and invest in additional resources later.

From there, add up and estimate your expenses to figure out your monthly operating costs and determine how long it may take for the business to generate consistent revenue.

Finally, add a contingency buffer or cash cushion. Unexpected expenses are common, and having additional funds available can help prevent disruptions during the early stages of growth.

You can use the SBA’s startup cost calculator to estimate your expenses as you embark on your entrepreneurial journey.

Important

Your startup budget should cover both launching the business and sustaining it through at least the first months of operation.

What If You Don’t Have Enough Money to Start?

Many successful businesses begin with limited resources. Mark Zuckerberg, founder of Facebook (Meta), started the social media platform from his college dorm room at Harvard University in 2004. Today, it’s one of the largest social media platforms in the world.89

Bootstrapping—using personal savings or business revenue to fund growth—is a smart way for new entrepreneurs to grow their business and maintain positive cash flow.10 It may be difficult, but you can avoid taking on credit card debt, losing ownership of part of your business, or having to ask family or friends for financial help.

If bootstrapping isn’t an option, the SBA’s funding guide outlines a variety of financing options that may be available depending on your business type and stage of development. These include small business loans, grants, venture capital investments, and SBA investment programs for qualifying small businesses.11

The Bottom Line

The amount of money required to start a business depends largely on the type of company you want to build, how quickly you plan to grow, and the resources needed to operate effectively.

Rather than focusing on a single average startup cost, entrepreneurs should identify their expected expenses, estimate ongoing operating costs, and build a realistic cash cushion. Careful planning won’t eliminate every surprise, but it can help ensure you have the resources needed to move from idea to operating business with greater confidence.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

1. SCORE. “How Much Does it Cost to Start a Small Business?”
2. Federal Trade Commission. “A Consumer’s Guide to Buying a Franchise.”
3. Business.org. “Small Business Startup Costs: What Business Owners Spend in Their First Year.”
4. U.S. Small Business Administration. "Apply for Licenses and Permits."
5. U.S. Small Business Administration. "Register Your Business."
6. U.S. Small Business Administration. “Calculate Your Startup Costs.”
7. Bank of America Center for Business Empowerment. “Working Capital: What Is It and Why Is It Important?”
8. Statcounter. "Social Media Stats Worldwide."
9. History. “Facebook Launches.”
10. Capital One. “A Complete Guide to Bootstrapping a Business.”
11. U.S. Small Business Administration. “Fund Your Business.”