According to Steve Strauss, the author of the best-selling book “The small business bible,” lack of finances is one of the top reasons many new businesses so early on. And it’s a great practice to understand how much money you need to start a business from scratch, because if you don’t know how much will it cost, or how much capital you need, surely it’s gonna be difficult later on.
Let’s examine the different essentials of a business and calculate the money you need to start your business.
Whenever you start a business, you have some fixed expenses that you spend only one-time and some ongoing expenses each month. Before you start your business, it’s essential to keep all the expenses in mind to not suffer from a lack of finances later on.
Let’s explain all those types of expenses quite briefly so that you could get an idea of how much money do you exactly need for your business.
Basically, it’s not what you see outside the box. Someone has a software company, and he is doing a great job. It looks like there are quite a few expenses, but that’s not true. They must be paying wages, rents, spending on marketing, and all that.
That’s why it’s essential to understand where you must spend to run your business smoothly.
There are three types of business expenses.
When you start a business, you spend some money on dozens of things that you don’t spend regularly. Examples of one-time expenses are a website, company car, business registration fee, etc.
Ongoing expenses are those you regularly spend each month—payroll, utilities, rent, marketing, etc.
It’s a type of expense that you spend periodically. An example of these expenses could be renovation or repairing, etc.
So while calculating How much does it cost to set up a small business, you should keep both expenses in mind.
We will walk through the different sections of a business so that you could calculate your startup costs. But keep in mind it’s not as simple it seems to be; the calculations will be a rough estimate because costs may change from state to state.
The reason is that every state has its own defined rules for businesses in the USA. Even the rents and product costs may change in each state due to labor costs and raw material costs.
Let’s calculate the estimated cost that you will require to start your startup.
Identify your startup costs.
Every business has it’s own expenses, it totally depends on what you do; the money you required to start your business could be just $3000, and it may range to a million dollar or even higher, it totally depends on what you do.
First of all, be clear about what you want to do and how you will start it.
There are two main business types that you can start,
- Traditional business
- Online Business
In both cases, the expenses will be different, and hence the money required to start the money will also be different in each scenario.
If you are trying to start a traditional business, you may need to pay for rents, utilities, and other miscellaneous expenses.
But in an online business, you can run it from an office that could be in your home, as most freelancers do.
As I am not sure what’s in your mind, I will add all the major expenses you require in traditional and online startups.
List of business startup costs.
Here is the list of the essential expenses that you will require to spend if you want to start a business in any state of the USA.
- Product/Services costs
- Marketing budget
- Renovation & Repairing
- Daily expenses
To calculate how much your startup will cost, you can sum up all the expenses depending on your business nature.
It’s recommended to take a pencil and paper to calculate your total business starting cost and add up as we all the expenses if those are essential to you.
Here I highly recommend only to choose the essential expenses because many business consultants, like, Brian Tracy and Steve Strauss, highly command to save each penny in the early days of a company.
There are some types of businesses that you can start in the USA.
- Sole proprietorship
- Limited liability company
You can understand these business structures here. And choose the right one for it.
Depending on your business structure, your company’s registration fee could be $100 to $1500. You can get information about the registration fee for your state from a state official here. Once you’re sure, please write it down on your paper.
No matter it’s a product or a service, it has its expenses. If it’s a product, then each item has its manufacturing price, and you must be aware of it.
How many items shall you produce each month? It’s a variable cost that keeps on changes, so you can only get an average of your plans.
And if you’re a freelancer and offering your services, this section doesn’t belong to you – until you don’t pay yourself for the services.
Pro Tip: Try to sort how people manufacture the best quality at low prices. It’s the key to success.
How many employees do you plan to hire for your company? It also depends on your startup type and what you are doing on it.
You can multiply with $35000 with the number of employees to get an estimated amount of your Payroll. However, it would help if you kept in mind that the actual cost will be higher than this amount.
Every business has its marketing expenses because it’s a pillar of business triumph. Most businesses spend 2 to 3 percent of their revenue on marketing, but it’s better to spend more than 7 percent of your total revenues on your startup marketing.
Pro Tip: It’s a pillar of any startup, so you shouldn’t compromise allocating a reasonable marketing budget.
Renovation & Repairing
If you’re not starting your startup at your home (that you must not do), then at least you need an office or a large building. Thus it will demand renovation. And there are repairing expenses as well.
These are periodic expenses that you spend after a specific period. It could be a year or two, etc.
You can keep it low but add this to your business cost.
No matter how small or big you’re, you need furniture. It could be your table, chair, and AC or furniture for a building. It’s a one-time investment.
Pro tip: It’s better to save money on it. Try to find used furniture to lower the expenses.
Rent is an ongoing expense that you will pay each month. You must be clear how much it shall take on the specific location that you dream of.
If you are not a big company and only have a few employees, let’s say 5, then it’s better to choose a shared building. That will cost up to $3000 annually.
Utility bills are ongoing expenses, and you should get an idea of how much it will take by competitor analysis. It’s better to go out and find out expenses than regretting it later.
It’s supposed to be an essential part of your business. And it will cost money.
The money will depend on which insurance company you choose and how much you invest in it.
You know, it’s the technology era. If you have no plans to add a website to your business, you’re losing large marketing. Whoever visits you wants to see you online for confidence and ease.
Website cost will depend on how much you spend on it. It could be your simple store that you can host on cheap hosting, or it could be an expensive store.
You should add up $1000 annually to your total business cost.
There are dozens of daily expenses that you have to pay regularly. It could be tea, meal, paper, pen or such small things.
So it depends how big or small you’re, and hence these expenses will be.
Summing up all the costs mentioned above, you will easily realize how much do you exactly need to start a business.