Costs Of Starting A Small Business

30 Nov 2016

In case you’re having a great idea for a new business but not a lot of funds, you might be wondering if you’ll have any chance of success at all.  You should know that not all types of businesses require much financial resources to start operating. To help you out with your business idea, we’ll give you an idea of the costs that are involved in this early phase.  

Because no two businesses are the same, some will be able to get by with a low amount of financial resources while others could need a lot more.  This is all heavily dependent of the type of product or service that’s being provided.  That’s why we’ll give you a general estimation of costs and explain that types of expenses you’ll be dealing with.

Average costs

An estimation by the Kauffmann Foundation has shown that it costs about $30,000 to start a business.  There are a lot of variations of course.  Some businesses have been able to make it big with a start-up budget of just a few thousand dollars.

Especially if you’re running a business from your own home without employees or office costs, you could survive on a very limited budget.  Another way to start a low budget business is by opening a franchise.  If you’re determined to become a successful entrepreneur, there’s no need to be discouraged by a lack of money.

 Types of costs

When calculating the costs that are involved in starting your new business, you should be aware of the different types of costs. Some of your costs will be one-time only (for example an incorporation fee) while others are recurring (insurance and utilities).  By separating these costs, you can budget for the initial start-up phase and you’ll know what to expect in the months after that.

You will also deal with essential and optional costs.  To keep your business running with the least amount of money invested, you’ll want to eliminate the optional costs as much as possible.  Essential costs can be split into fixed (rent and administration) and variable costs (shipping and packaging).

If you want to make a good calculation of all your expenses, you should include all of the different types of costs.  Especially the variable costs can be hard to predict so you’ll have to calculate a best case and worst case scenario.

 What to expect

You can save a lot of money by working from home. If you do decide to rent an office space, this will probably be one of the biggest expenses of your start-up. The average monthly rental price of office space can range from about $2 per square foot (in Atlanta) to more than $6 (in New York).

As an employee will need about 175 square foot to work in, you’ll need about 875 square feet of office space if you have 5 employees.  This comes down to a monthly rental price of $1,750 in the cheaper cities while it will cost you $5,250 in the most popular area.

Getting a phone connection for your new business doesn’t have to be expensive.  Using the internet for your calls is a low cost alternative to traditional phone lines. You can use VoIP to make calls, at no cost at all.  All it takes is a headset and a few hours of installation.  It allows you to make calls from every place with an internet connection and you can easily add new lines by yourself.

Having an online presence is vital for any company. Having a website is preferable over ad marketing as it’s much more targeted and you can reach more customers. Once you’re website is successfully setup and running, it can be quite cheap to be listed at the first page of the popular search engines.

By using multifunctional software, you’ll get the most bang for your buck. The market for business software is very competitive, creating very interesting package deals. Google is offering the G Suite Plan which includes email, video chat and online storage for $5 per user per month. An all-in-one Small Business Management solution that can empower you to run your entire business can be purchased at for just $15 per month, with a free 30 day trial.

Salary costs can differ a lot from one industry to the other.  If you want to get a proper idea of the employee costs, it’s best to check with the leaders in your industry field. Financial statements are often publicly available and can give you a lot of useful information.  By comparing employee costs of companies that are similar to yours, you can make a reliable estimation about your future costs.