Dreaming of being your own boss and launching a new business? There have been 16 million new business applications since 2021. This increase and the many newly established operations that come with it create a lot of opportunities.
Turning that entrepreneurial vision into reality is exciting, but it also requires careful planning, especially when it comes to business startup costs. So how much does it cost to start a business? Understanding financial obligations for your particular business is a must.
This guide will break down the numbers you need to get a handle on. We’ll cover the key factors that impact startup budgets, from licensing fees to inventory and marketing spend. You’ll learn how to realistically calculate the costs of getting your business off the ground.
How much does it cost to start a business?: Overview of startup costs.
Every new business venture requires capital. This covers startup costs before you can officially open the doors. Exactly how much money you’ll need can vary depending on factors like the actual costs involved in the first year of business.
Business type
The startup costs for a small home-based operation like a consultancy can be minimal. It’s different from opening a restaurant or retail store, where the business model determines inventory needs, marketing strategy, and costs. These types of businesses require things like inventory and employees.
Location
Costs like commercial rent and taxes depend on the city and state. A small business based in a major metropolitan area could have higher overhead costs due to expensive office space. Especially when you compare their business to those in more rural areas.
Industry
Certain industries like food service or healthcare have bigger regulatory hurdles. They also have requirements upfront for things like specialized equipment, licenses, insurance policies, and legal fees. It’s important to estimate your total startup costs based on your specific business circumstances.
3 business expense types to be aware of.
Before diving into your launch, it’s important to understand the typical business expenses involved. This can help you prepare your budget and avoid some financial surprises. Let’s look at more examples of startup costs by business type.
1. Retail spaces
Brick-and-mortar locations have some significant startup expenditures. This includes leasing commercial space. They may also need to focus on renovating and outfitting the storefront to get customers in the door. Additionally, retail businesses must consider shipping costs, which can include expenses such as packaging materials, postage, and shipping insurance.
2. Food and beverage needs
Restaurants have even higher initial investment costs for kitchen equipment and dining room furniture. They also need to manage kitchen staff hiring. Plus, there’s the ongoing inventory cost of food and beverages.
3. Service expenses
Services like cleaning or landscaping may start with lower overhead. However, they still require insurance. You may also need specific equipment or vehicles to run the business properly. It’s important to factor that in with all necessary supplies.
Using accounting software can help manage expenses, track expenses throughout each month and during tax season, and handle basic bookkeeping such as processing and managing payroll, creating and tracking invoices, and managing the business bank account.
Hiring your first employee? Check out our New Hire Training Checklist and Onboarding Guide
7 Key steps to start your business.
Once you’ve determined your startup costs and you’re ready to get your business off the ground, it’s time to start checking off the major action items. Here’s a look at some of the items to put on your to-do list.
1. Identify and validate your business idea
Passion is a great foundation for your business. But you also need to make sure that there’s market demand and revenue potential. Conduct market research and analyze competitors to validate your assumptions. Then define your target customers and unique selling proposition.
2. Write your business plan
Your business plan lays out all the details of your strategy. From market analysis to financial projections. Careful planning will guide your actions and help you start the business on a path to success.
3. Determine the right business structure
The legal structure you choose impacts everything from taxes to operations. Evaluate the pros and cons of each. You can do this by considering things like ownership, funding needs, and administrative work.
Common structures for businesses just starting out include:
Sole proprietorship: The company and the owner are considered the same. The owner is personally responsible for all business responsibilities.
Partnerships: A business with more than one individual. A partnership requires a partnership agreement, and partners have limited liability for the debts of the LLP.
Limited liability companies: Can be owned by one or more people/companies and limit your personal liability for business debts. They’re one of the easiest business structures to establish. The process of incorporation and filing fees for a limited liability company can vary by state.
4. Register the business
One of the first major steps is legally registering your trade name with federal or state authorities. Look for potential trademark conflicts. Also, take steps to protect your intellectual property rights if that applies to you.
Handle legal fees and tax obligations
Obtain licenses and permits required for your industry. You’ll also need to set up the appropriate tax accounts and procedures for payroll. Many states and localities have their own obligations to ensure regulatory compliance from day one. Understand all rules that apply to your company.
For example, it’s important to apply for an employer identification or tax I.D. number. Your employer identification number (EIN) is issued by the IRS. You need one so you can file federal taxes, hire employees, and open a business bank account. You can apply for an EIN on the IRS website. Some states also require a state-level tax I.D. number, so check if one is needed in your state.
6. Secure funding
At this point, you should have a good answer to the question: How much does it cost to start a business? Now, you can begin putting money toward those expenses you have before launch.
You may need to get a small business loan or investors beyond the capital you have access to. Factor in the time it will take to do that.
Keep in mind that you should also have some money set aside in a bank account to cover ongoing or unexpected expenses. Research shows that 55% of business owners say they have $50,000 or more across all their business bank accounts. And 23% report having $250,000 or more on deposit.
7. Officially launch your business
With planning complete and operations ready, it’s finally time to start selling your products or services. Have a strong promotional strategy for attracting those first customers. Also, continue keeping an eye on your expenses to keep your business in good standing as you get the ball rolling.
Checking off those key milestones is just the start. But getting the foundational work done upfront goes a long way in setting yourself up for sustainable growth. Putting in the work now will continue to pay off as the business evolves. Additionally, consider the costs and considerations specific to operating an online business.
Using Homebase to optimize your business.
Having the right tools and technology in place is valuable as you start this journey. Homebase provides an all-in-one platform that can power your business. The Small Business Administration offers additional resources to help estimate employee costs and apply for startup loans and business credit cards.
Simplified scheduling and labor management
Optimizing your staffing levels is important, especially for businesses with shift-based teams. Homebase scheduling helps managers create optimized schedules based on demand and employee availability. You can duplicate schedules or build from templates to save time.
Streamlined time tracking and payroll
Manual timesheets can be a hassle. Homebase enables employees to easily clock in/out from their mobile apps or on-site tablets. Track hours worked, PTO, and breaks. When it’s time for payroll, approved timesheets integrate with payroll processing.
Centralized employee records and compliance
Maintaining accurate records and adhering to labor laws is important. But it can also be challenging. Homebase provides a hub to store and access all digital employment documents and policy resources. This helps to simplify compliance.
Streamlined hiring and onboarding processes
Post open roles to multiple free and paid job boards right from Homebase. Easily review applicants and schedule interviews. Then, onboard new hires with digital paperwork. New employees get instant access to a time clock and schedules.
Effective team communication
Staying aligned across teams is a must. With Homebase’s team messaging tools, you can instantly share updates and shift details. Message individuals directly or get announcements out to an entire team.
From applicant tracking to team communication, Homebase equips your startup with an infrastructure that’s right-sized for small businesses. All while being powerful enough to scale up operations over time.
It’s time to start your small business.
Being a new business owner and starting your own business is exciting. Getting a handle on the financial and operational costs upfront goes a long way toward increasing your odds of success. Carefully calculating spend and thinking through your goals now can have a positive impact for years to come.
From there, you can focus on things like remaining compliant and coordinating your team. Thriving businesses are built on operational efficiencies that allow you to maximize productivity and profitability from the first day.
With Homebase, you get everything you need to take control of your business. Designed for hourly work, Homebase will help you schedule your team, track their hours, and run payroll seamlessly. You’ll also have a team communication app that keeps you and your employees on the same page. Homebase even has expert H.R. guidance to help you comply with government regulations without an in-house H.R. team.
Homebase is the all-in-one management app that simplifies running your small business. Get started now for free
