Blog

What Does it Cost to Start a Small Business?

Starting your own business can be exciting, as well as overwhelming, as it requires effort and costs money.  

It’s crucial to be informed and realistic when determining your business startup costs, since things like office space, payroll, upfront purchases, legal fees, business credit cards and other expenses can really add up (quick).

So what does it cost to start a small business, so you can figure out how much you’ll need to launch it?  

While every type of business has its own financing needs, according to the U.S. Small Business Administration, it costs around $3,000 to start most microbusinesses, and most home-based franchises cost $2,000 to $5,000.

One of the main reasons most small businesses fail is that they run out of cash, so estimate your costs, prepare for the unexpected expenses, and know that new expenses can arise as the business grows.

It’s important to understand what types of costs you’ll have, such as one-time vs. ongoing costs, fixed vs. variable costs, and essential vs. optional costs.

Depending on the type of the startup, here are types of costs you’ll likely have as you start your new business:

  • Web design and web hosting
  • Down-payment and rental
  • Furniture and equipment
  • Labor
  • Basic supplies
  • Inventory
  • Insurance, license or permit fees
  • Business plan
  • Legal and accounting
  • Marketing and advertising

Variable costs and ongoing costs will depend on each business’s situation.

An important aspect of a startup’s financial planning is to project the business’s cash flow, and add up not only fixed costs, but also the estimated costs of goods and best- and worst-case revenues.

Many entrepreneurs look into figuring out ways to raise more cash than they think they’ll need to cover for contingencies.  Experts in the field estimate that an entrepreneur will need three to six months’ worth of fixed costs on hand at startup.

For a solid estimate of what you really need as starting cash balance, calculate the deficit spending you’ll likely incur during the early months of the business; from there, estimate how much cash you’ll need moving forward until you hit a steady break-even point several months and even years after opening.

Whenever possible, start a business without borrowing, as it puts less pressure on any business and its owners and leaves less room for error.  Explore all of your funding options, and if borrowing is your only option, take steps to ensure your business is financially able to handle the commitment.  If you do borrow money, calculate how much interest you will owe, be realistic about your cash flow and debt, and keep in mind that when it comes to small businesses, your personal assets are also often on the line.

In addition to capital financing options, many new businesses need various start-up assistance.

As you embark on a new business venture, you may wonder if you can start without an attorney and save some money, and then get one later if and when a problem arises.

Depending on the business type, the state where you open your business, how many people are involved, and your business needs, requirements for your start-up will vary. 

An experienced business law attorney can provide crucial support with navigating the numerous forms and requirements of legal documents, trademarking your name, discussing legal structures as needed, etc.

Having legal counsel on your side will allow you to ensure all processes are legally binding and defined in solid, thorough contracts, from sales of services or goods to supplier agreements, terms and conditions.  Ensure you are doing everything to properly set up and protect your business by choosing a reputable law firm, so you can focus on other aspects of your business.

At Levin Law Group, our proficient corporate and business lawyers in New York and surrounding areas will work to make sure your legal bases are covered and your rights and interests are protected from day one of the intricate process of starting a business – contact us today: 800.517.5240.