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In 2018 when I decided to start a business, I knew I’d face certain costs to get the business off the ground.  My initial anxiety gave way to excitement and allowed me to enjoy my first foray into entrepreneurship- quickly followed again by doubt.  Starting a business isn’t for the faint of heart, but if you’re like me, it is a great way to assuage your natural entrepreneurial tendencies.

At first, these feelings stemmed from financial worries: Where would the funding come from? How do I plan to monetize my website?  

It quickly led to more concern about the time commitment involved but financially-speaking, my initial concerns were long-term in nature and my personal finance and entrepreneurship site would first need to pass the proof-of-concept phase.  From the onset, I also knew I needed to consider business startup costs.

In my case, I did some quick due diligence and saw the financial commitment to starting up a business online wouldn’t come nearly as expensive as other industries with more tangible assets and resources.  Now that I’ve established myself and decided to stick around and build out my online business, I’ve set out to explore the types and how much business startup costs range across multiple industries and business types.

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Every Successful Business Shares One Thing in Common: A Great Plan

If you solicit feedback from any aspiring entrepreneur about their largest obstacle, you’re likely to hear a refrain about needing access to capital (money) to bring their vision to life.  

Understandably, entrepreneurs have several business startup costs to cover but also have on-going expenses like payroll, production, operations, marketing, and more until you manage to eke out a profit.

Business startup costs can vary widely based on the industry, scale, location and any other number of factors.  Once you do an assessment of understanding how much money will be required to start and maintain your business, you’ll dramatically increase your likelihood of success and longevity to build your brand.

When you sit down and detail your business plan, you’ve made an important step toward making your vision a reality.  This plan explores the business startup costs, timelines, and necessary resources; prepares you for what to expect from founding to scaling; and projects what the business might look like with sufficient time and investment.  

This business planning sets your company up for success and allows you to anticipate challenges you’ll face along the way.

This post explores the three P’s (planning, preparing and projecting) of business startup costs and provides some added detail on the costs you’re likely to encounter along the way.

Planning a Business

When starting a business, your first step involves assessing your startup costs and then how much money will be needed for your company’s run rate.  In other words, the amount of on-going money necessary to sustain your business as a going concern.

Just before the Great Recession (2008), the Kauffman Foundation estimated the average cost to start a new business from scratch ran over $30,000, up from $20,000 in 2004.  

As an aside, more worrying from that study is the amount of funding entrepreneurs used from credit cards.  While certainly a useful source of funding – though expensive – the interest payments made on these lines of credit can qualify as tax deductions on your tax return.  Silver linings, I suppose?

With a rough idea of how much a new business paid in startup costs on average, you can have a reasonable expectation of the costs you will face.  Now, let’s look at some broad categories you’ll need to use for understanding the segmentation of these costs and what some of them might cost.

1. Capital Expenses ($1 – $1,000,000+)

These expenses include investments which add to the business’s value as well as production capabilities.  When looking at a statement of cash flows, you will find capital expenses in the Investments section of the statement because these represent money paid for long-term assets meant to grow or improve the business.  Examples include office equipment like computers and technology, machinery and equipment used for production, or other items meant to improve the operational and functional capabilities of the business.  Depending on the business, these capital costs will vary. For my website, my capital costs included a laptop and money paid for hosting. If you’re looking to start a radiology or dermatology practice, that machinery and equipment can run into the multi-millions.  Understandably, the type of business matters.

2. Operating Expenses ($100 – $1,000,000+)

During the daily workings of a business, it incurs routine expenses necessary for its continued operation.  Such major items include, but are not limited to: 

    • Utilities ($50 – $5,000)
    • Insurance ($300 – $30,000+, depending on the industry and profession)
    • Inventory ($1 – $1,000,000+, depending on digital inventory versus tangible inventory)
    • Supplies ($1 – $100,000+, depending on the business scale and needs)
    • Wages and Salaries (Varies based on headcount, field, industry, and business scale)

When reviewing your operating expenses at the start of your business, it is important not only to calculate the costs you will need to cover at start-up, but also to remain financially solvent going forward and eventually to turn a profit.

3. Professional Services

To make your company hum, you’ll need to solicit the services of paid professionals, some of which who come with higher price tags.  Such items include marketing, advertising and PR; legal assistance from outside law firms; accountants (like me!); website development and creative; and many more.  Often times, at the start of your business, many of these services will be contracted for until your business scales sufficiently to bring these ongoing services in-house.

While business startup costs can run the gamut, they can differ based on the type of business being started.  For example, most businesses fall into one of three categories:

  1. Brick-and-mortar
  2. Online
  3. Service

These businesses likely have overlap (e.g., a brick-and-mortar store may also have an online presence) and will share common costs types, many of which are mentioned above.

Projecting Your Business Expenses

Starting up a business is only the first battle you face as a small business owner.  You will then need to allocate enough money to fund your ongoing operations to keep your business running.

Going into this process, you shouldn’t set yourself an expectation of making a profit for some time.  That’s not to say it is impossible- some businesses have high margins and a durable business model which doesn’t require significant reinvestment to grow the business.

These scalable businesses are rare: having high profit margins, insulation from competition and low reinvestment needs attracts entrepreneurs and will erode these advantages with time.  

More likely will be consistent reinvestment of cash flows and additional capital infusions into the business should scaling to a larger size be the goal.

When you have plans to grow, you need to base your costs on realistic projections.  This involves having a decent understanding of the profit potential of your business and how much you can expect to spend to grow these profits sustainably.  

That’s where projecting your financial circumstances forward comes in handy.  If you can detail the expenses discussed above to their current and likely future states under various scenarios (i.e., slow growth, normal growth, fast growth), you can establish a firmer business plan and help your company’s financial future.

More tangibly, taking these expenses from inception and projecting them out a year under those growth scenarios inform you of the cost for running your business in the coming year.  As you calculate your financial projections make sure to consider fixed costs like:

  • Rent
  • Utilities
  • Salaries, and 
  • Professional services 

Also consider your variable costs like:

  • Costs of goods sold (inventory)
  • Materials and supplies
  • Labor and related costs which scale with different production levels

Know it is hard to understand how the future will look.  Your practical money management skills, risk management, and prudent decision-making will prove useful throughout.  

What is most important is understanding how your startup‘s financial future might evolve.  Many economic forces will be outside of your control like inflation, job growth, economic activity, and more. Your job is to control what is within your sphere of influence.

As a result, projecting your business expenses entails not just knowing your own startup’s finances, but also the larger market in which you compete.  Take a lesson from your competitors to understand how fast they’ve grown in recent years and what that meant for their businesses. And most importantly: do you see this likelihood continuing in the future?

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Prepare for Financial Success

After you’ve gone through your possible business expenses to start your company and then to operate for the first year, you should carry a better understanding of what it takes to start and run your business.  This is where things get interesting. No- when things get wild!  It’s when you finally open your doors for business (literally and/or figuratively) and test the waters.

Attempt to overcome any doubts you have about being successful and put your business plan in action.  You’ll need to assess items as they develop which differ from your plan.

This is where understanding how to mitigate unconscious bias becomes useful, adapting the best way you know how, and turning setbacks into opportunities.  At this point, you’ve already tallied your business startup expenses and how much operating the business will cost.

If you need financing to put this plan into reality, exploring small business loan options is a great opportunity.  Because funding for a startup is key for inception and survival, there are countless resources out there which differ from traditional funding, such as grants, crowdfunding, venture capital and angel investors.

When evaluating your options, decide which funding sources work best for your needs.  Balance your equity needs with debt and avoid taking too much risk if the risk-adjusted returns don’t justify the financing arrangement.

As this site continues to evolve its focus and content on entrepreneurship, I will be sure to include sections detailing each of these items and how they can improve your likelihood for your small business having success.

There’s little doubt starting up a business can be tricky.  Now that you’re armed with more information on how to go about systematically calculating your financing needs to start and run your business, you can take the next step toward making your entrepreneurial endeavor a reality.

More: Find the credit card the earns you the most rewards for your business needs.

About the Site Author and Blog

In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time.  My job routinely required extended work hours, complex assignments, and tight deadlines.  Seeking to maintain my momentum, I wanted to chase something ambitious.

I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity.  I launched the site with encouragement from my wife as a means to lay out our financial independence journey and connect with and help others who share the same goal.


I have not been compensated by any of the companies listed in this post at the time of this writing.  Any recommendations made by me are my own.  Should you choose to act on them, please see my the disclaimer on my About Young and the Invested page.

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