Is the cost of starting a business preventing you from launching your best idea?
This fear is common amongst aspiring small business owners; they want to start a company but are worried about all the startup costs.
Hi, my name is AJ! I recently sold my business for multiple seven figures. Now, I aim to help current and future business owners by answering all their pressing questions.
Although I had plenty of educational resources, I still made many costly mistakes when starting my business!
If you’re ready to learn about business startup costs so you can spend your money wisely, you’re in the right place!
I’m revealing everything you must know and more!
How Much Does it Cost to Start a Business?
Launching businesses costs between $500 and $40,000 (including first-year investments) on average.
Still, it’s possible to start a business with only $100 (I’ll dive into that later!).
So, how much does it cost to start a business? It really depends on the type of business.
For example, business startup costs vary based on these types of companies:
- Product businesses
- Service businesses
- SaaS businesses
- Online businesses
Let’s look at these startup costs for each type of business in greater detail!
How Much Does It Cost to Start a Product Business
A product business costs between $1,000 and $100,000 to start (on average).
A product business is when a small business sells tangible goods to consumers.
On the high end, this is a brick-and-mortar business with an online presence to compete with other product businesses.
On the low end, this could also be a dropshipping business, where you’re putting your brand on AliExpress products.
Product Business Examples
Some examples of small businesses that are product businesses include the following:
- Clothing departments
- Furniture Stores
- Water bottle companies
- Specialty office chair manufacturers
- Sports equipment companies
- Dropshipping businesses
The list of product businesses is endless!
Product Business Costs
The cost of a product business depends entirely on the level of product you’re offering.
- Cheap: Dropshipping (pretty much anything)
- Expensive: Building and launching the next gen of electric vehicles
Some of the startup expenses you can expect if you want to launch a product business include the following:
- Marketing budget (to promote your products)
- Market research (to learn about your competition)
- Retail space (a physical location)
- Legal fees (incorporation fees, business paperwork, etc.)
- Prototype creation (to see what your product will look like in real life)
- Production product rollout
- Office Supplies (if applicable)
- Equipment costs (if you’re setting up a warehouse)
Even after the business startup costs, you must be prepared for recurring expenses in the future, like payroll, building maintenance, and shipping costs.
How Much Does it Cost to Start a Service Business?
Small business owners starting service companies expect to pay less than product-focused companies.
For instance, small business startup costs for service companies range from $500 to $50,000, depending on the product on your budget.
Starting a professional service small business under $2,000 is undoubtedly feasible!
When I launched The Guerrilla Agency, I bought a cheap laptop and setup an LLC on my own. When I started making money in the business I had invested about $1,000.
Service Business Examples
Some examples of service businesses include the following ideas:
- Athletic training
- Maintenance Services
- Graphic Design
- Digital Marketing Services
- Business Consulting
- Financial Advising
- Academic Tutoring
- Pool Servicing
- House Painting
- Massage Therapy
Service Business Costs
Small business owners spend money on the following expenses when they’re launching a service company:
- Business License
- Business Registration
- Business Insurance
- DIY Website
- Business Cards
How Much Does it Cost to Start a SaaS Business?
SaaS stands for software as a service.
These companies create mobile apps or downloadable desktop software for users to enjoy.
Therefore, SaaS companies tend to be more pricey (between $15,000 and $100,000) because new business owners must create customized software.
SaaS Business Examples
Some kinds of SaaS businesses include the following:
- Accounting software
- Customer relationship management providers
- Communication software (Slack, Zoom, Skype, etc.)
- Donation management software (Donorbox, GoFundMe, etc.)
- Social media management software (Buffer, Meta Business Suite, etc.)
- Digital document signing software
SaaS Business Costs
You can expect the following business expenses for SaaS companies:
- SaaS Prototyping
- SaaS Product Rollout
- Software Maintenance
- Analytical Tools
- Billing and Payment Software (and Integration)
- API Integration
- Marketing Costs
- Sales Costs
How Much Does it Cost to Start an Online Business?
Any one of the businesses listed above could be a purely online business.
The average startup costs for online businesses range from $500 to as high as you’d like.
Online Business Examples
Some online companies examples include the following:
- Online Blog
- Web Designer
- E-commerce Retailers
- SEO Consultant (any consulting business)
- Social Media Consultant
- Dropshipping Business Owner
- Affiliate Marketer
- Remote Tech Support
- Virtual Assistant
- eCommerce Businesses
- SaaS Companies
Online Business Costs
Some expenses associated with online companies include the following:
- Business License
- Web Hosting
- Web Design
- An e-Commerce Platform (if necessary)
- Payment Processing Software
- Digital Marketing
Types of Startup Costs
Every startup cost is different.
For instance, there are fixed, variable, and one-time expenses.
Below, I’ve compiled an easy-to-read comparison of the various startup costs you can expect!
One-Time Vs. Ongoing Costs
One-time costs are just like they sound—expenses you only have to pay once.
Think of one-time expenses like buying a bicycle: you pay for it once, and then it’s yours to keep.
On the other hand, ongoing costs are like your paycheck: they happen regularly.
For example, if you buy a cell phone (a one-time cost), you’d still have to pay for the data plan every month (an ongoing cost).
Essential Vs. Optional Costs
Essential costs are like the money you need to buy lunch at school every day.
Without it, you won’t be able to eat.
In the business world, these upfront costs could include paying for the business license or buying the necessary equipment.
On the other hand, optional costs are like the money you use to buy ice cream from the cafeteria.
It’s nice to have, but you can still get by if you don’t have it one day.
In business, these could be costs for things like fancy business cards or a high-end website design, beneficial but not strictly necessary for the business to operate.
Fixed Vs. Variable Costs
Fixed costs are like your monthly Netflix subscription.
No matter how many shows you watch, you must pay the same amount each month.
In a small business, fixed costs could be things like:
- Rent for an office space
- Salaries for employees
- Payments on small business loans
These costs don’t go up or down; they stay the same each month.
Variable costs, on the other hand, are like buying popcorn at the cinema.
The more movies you watch, the more popcorn you might buy.
In a business, variable costs could be things like materials for products.
The more products a company makes, the more materials they need to buy.
So, these costs can change depending on how much business a company is doing.
Common Startup Costs
Below, I’ve created a list of standard business startup costs you must know about!
If you run your own business and don’t know what to expect, this list is what you need.
Business Incorporation Costs
Part of your startup funding must go toward incorporation fees.
The expenses ensure you’re legally allowed to own and operate your business.
You can use a corporate lawyer to set up your business or file the paper yourself.
Product expenses vary based on how much inventory you demand initially.
Regardless, it’s essential to incorporate shipping and storage costs into your product inventory expense.
If you need a small business loan, it’s vital to know (roughly) how much your product inventory will cost.
Owning a business requires you to buy the necessary equipment.
The cost of this equipment will depend on the type of business entity you decide to open.
For instance, if your business is a cafe, you may need an espresso machine and coffee grinder.
An excellent, eye-catching website is a must in today’s digital world.
Therefore, regardless of your business structure, you must plan to create and maintain a website.
Also, websites ensure your website looks legitimate to new customers!
Getting insurance for your business protects you from paying for damages, accidents, and errors out of your own pocket.
Most businesses get general liability insurance.
However, property and auto insurance may be something your company could benefit from, too!
One BIG mistake I made while starting my first business was waiting to implement a CRM system.
What is a CRM? CRM software helps with several business aspects, including the following things:
- Streamlines communications between employees and customers
- Boosts sales
- Organizes important contact information
- It helps businesses understand more about their target audience
- Uses automation to streamline business tasks
Although CRM software can be pricey up front, it helps your company earn way more money in the long run!
Depending on your specific business, you may have to budget for a physical location for customers to view your products.
When figuring out the monthly costs of an office location, ensure you factor in utility costs as well!
Physical locations must be furnished to some extent.
You don’t have to go overboard while furnishing your retail space, but including the essentials helps your business look more professional.
Some kinds of furniture to consider having in your office space include:
Staffing & Employees
Depending on your business model, you might need help running your company!
Workers’ compensation can cost tens of thousands of dollars monthly.
Staffing and employee expenses vary based on the following factors:
- The size of your team
- Employee skill and experience level
- How many hours employees work
- Your business location
Advertising and Marketing
Your business plan must include marketing and advertising expenses.
You have to get your business’s name and mission out there to the public, and advertising is how to do it!
Starting a Business Cost Savings Tips
If you’re starting a business with your personal savings as your initial capital, you want to make every penny count.
Trust me, I get it! I was in the same boat not too long ago!
Here are some money-saving tips to help you start your business.
Tip 1: Choose an Inexpensive Location
One more manageable way to save money while opening your first business is choosing an inexpensive location.
Many businesses strive to be downtown in busy city locations, but they come with higher rent and other costs.
Tip 2: Don’t Buy Expensive Equipment
You can always upgrade your equipment as your business grows.
Enjoy higher profit margins by investing in mid-tier equipment to do the job.
Tip 3: Leave Unessasary Costs Out of the Business
Hiring professional web designers and experienced employees right away can be tempting.
However, leaving unnecessary costs behind is a wise choice when building your business.
Tip 4: Start with a Service Business
Service businesses allow you to build your company’s revenue without investing too much money.
Also, you don’t have as many unexpected costs with a service business.
Tip 5: Get a Business Credit Card
Ensure your customers know how to get ahold of you!
Creating business cards is an excellent way to spread the word about your business while getting creative.
How Much Money Should You Have Saved Before You Start a Business?
How much capital you need to start a business depends on the type of company you wish to open.
For example, some online stores and service businesses can open with as little as a $50 investment.
However, other businesses, like SaaS companies, demand up to $100,000 in capital to cover expenses.
Regardless of the amount of money you need in order to open your business, it’s helpful to know this early in the process.
How to Start a Business with $1,000 or Less
Here is a step-by-step guide to starting your business with $1,000 or less!
Step 1: Sell a Service
Selling a service is an excellent way to save money and earn cash flow quickly.
You can sell numerous services because people are inclined to pay someone else to do the things they’d rather avoid!
If you don’t have money for a computer, no sweat! Door knocking will be your new friend.
Step 2: Buy a Cheap Laptop
Buying a used or cheap laptop is an excellent way to save money.
Some new laptops can cost as much as $3,000!
However, used or refurbished models can save you some cash!
Another exceptional option is the Google Chromebook, which runs anywhere from $300 to $550.
Step 3: Use Squarespace to Build a Website
Using Squarespace to build your first website is beneficial for several reasons.
First, Squarespace offers inexpensive plans that are perfect for first-time business owners.
Also, Squarespace provides numerous professional templates to help your company look professional, even if you’re new!
Step 5: Learn Digital Marketing
If you’ve made it this far, it’s time to start marketing your business.
At this stage, you probably still won’t have much cash. Here’s what I would learn out to do in order.
- Get some free marketing tools (HubSpot works excellent).
- Start putting yourself out there on social. Posting 3-4 times a day is free; you’ve got the time at this stage.
- Build up an email list and start a weekly newsletter. You’ll have existing service customers to send the newsletter to, as well as some folks from social.
- Start learning SEO and content marketing.
Can you Start a Business With No Money?
Yes! It’s possible to start a business without money, although it will take patience, savviness, and grit!
Essentially, I would run the same plan I listed above (starting a business for $1,000 or less), with a few small changes.
- Step 1: Sell a service (something you’re good at)
- Step 2: Save up some cash
- Step 3: Reinvest back into growing your service-based business
- Step 4: Invest into the business you REALLY want to start (unless it’s a service-based business)
There you have it! Everything you need to know about starting your own business!
With any business, there will be some expenses. However, there are numerous ways to save money during the initial startup phase.
Doing things like building your website yourself and utilizing free tools from reputable companies will save you considerable money.
What type of small business are you starting? Let us know in the comments section below!