10 small business startup costs new entrepreneurs need to know

Small business startup costs are expenses you’ll need to cover when you establish your enterprise. Most new entrepreneurs are fuelled by excitement, anticipation, and energy – however, it’s important that you don’t leap in too hastily. There are various costs that will need to be financed, including anything from equipment, inventory, utilities, marketing, payroll or interest on borrowing. Primarily, as a new business owner, you need to make sure you can afford these payments. From here, it is crucial to do your research to ensure that you don’t run into any hidden fees or taxes.


Below, we’ve compiled a list of ten common small business startup costs. Although these will vary from industry to industry – for instance, you’re unlikely to need to factor in shipping when financing a new restaurant – this list should help get you started when you’re drawing up your budget. With this foundation, you can work towards creating a viable business plan that will help make your dreams a reality.


How to approach calculating your small business startup costs

Before running down our list of basic small business startup costs, we’ll begin with a brief introduction. The cost of starting a company can rack up – so it’s important that you have a game plan. Thankfully, there is a wealth of resources out there to help you put together an estimate of the startup costs for your business. For example, the SBA provides a handy worksheet that can help you estimate how much business capital funding you’ll need to get your venture off the ground.


Furthermore, it’s important to bear in mind that many of these costs will be recurring, as opposed to one-time payments like store fit-outs or incorporation taxes. Therefore, a good approach is to make sure that you can meet six months worth of payments. This will mean you have something to fall back on should you fail to meet revenue targets. So – without further ado – below is our list of ten basic small business startup costs you’ll need to cover.


1. Incorporation fees, licenses, and taxes

If you’re new to self-employment, it might be news that there are taxes associated with your small business startup costs. When establishing your venture, you’ll need to determine what type of business entity you’re setting up. This is important as it will determine how you pay tax and borrow money. For example, if decide to incorporate your company it will become a separate legal structure to yourself. This is useful for a number of reasons, but it comes with a price tag. Check out the SBA’s state-by-state list of incorporation fees for further information.


However, if you choose not to incorporate your company, it doesn’t mean you’re off the hook. Depending on the nature of your business, you might need to apply for a license or permit. The fine print will vary from state-to-state, however, there are some industries that require federal licenses. For instance, farmers will need to apply for a federal permit, whereas a hairdresser will need to get a state license. Although this might sound complicated, once again, the SBA is here to help. You can consult their information on licenses, permits, and associated fees here.


Once you’ve established the type of business you are founding, you can calculate your taxes. Although it’s challenging to assign a concrete number – it’ll depend on your revenue, which is tough to predict exactly without psychic powers – you can make a ballpark estimate that will make sure you’re prepared. Often, it’s a good idea to work with an accountant. Although this might seem like an extra expense, it can save you time and money in the long-term.


2. Consultancy and advice

Speaking of accountants, this brings us quite neatly on to our next expense – professional consultants. Although it might be tempting to go it alone with some SBA fact sheets, this is often a recipe for disaster. This isn’t to say you need to hire a full-time bookkeeper or attorney, but make sure you get the advice you need. For instance, an accountant can make sure you understand employment law, as well as help with taxes. Furthermore, a lawyer can help you navigate intellectual property law and contracts.


Every consultant will charge different hourly rates depending on the complexity of the task and their experience. However, you can manage these costs by outsourcing only the most complicated work. For example, good accounting software can help you keep on top of your own basic bookkeeping, such as payroll, invoices and day-to-day banking. Therefore, you can keep your small business startup costs down whilst making sure you’re protected.


3. Premises and utilities

Rent or mortgage payments will be a significant portion of your repeat costs. On top of the initial down payments, you’ll also need to consider utility bills. These will include electricity, gas, water, telephone lines, and Internet bills. Furthermore, air conditioning or ventilation can be especially expensive. Annually, these units can cost roughly two thousand dollars to run, without taking into account installation or maintenance.


Of course, the size of this investment will depend on the type of business you run. Therefore, if at all possible, it’s good to work from home when you’re starting out. This can help mitigate major expenses whilst you’re getting a feel for the cost of running a business. Alternatively, you could consider traveling to clients. For instance, if you’re setting up a beauty therapist, you could start out by doing home visits to test the water.


4. Furniture, equipment, and tools

Every type of business needs equipment funding – for instance, even a freelancer has to have a computer. Once again, the amount you budget will depend on the kind of company you want to start. For instance, if you’re opening a car repair shop, you’ll need to buy ramps and tools. If you’re a photographer, you’ll need to finance camera equipment. Or, if you’re opening up a venture that operates out of an office, you’ll need desks, chairs, phones, and stationary...you get the picture.


Furthermore, if you need to get subscription computer software like Adobe Suite or Dropbox, these new business costs can rack up – so make sure you don’t forget to put them in your breakdown of recurring expenses. These numbers will be further influenced by the size of your company and the number of employees. For example, if your restaurant kitchen is going to have multiple chefs, they’ll need enough pots and pans to go around. Equally, in an office-based business, everyone will need their own computer.


5. Insurance

Just like everything else in life, your business needs protection. There are many different types of insurance out there, so make sure you do your research. For example, a tech startup is likely to have radically different insurance needs to a construction company. However, there are a few essential types of insurance that you’ll need to operate. These include:


General liability cover, which will protect you from claims including property damage and personal injury.
Commercial property insurance, which will protect your buildings and assets from perils like fire, theft or natural disasters.
Workers’ compensation insurance, which covers costs resulting from injuries incurred whilst at work.
Errors and omissions insurance, which will cover claims made by customers on the grounds of inadequate services, products, or negligence.


6. Payroll

You need to pay the people that work for your business – and that means you as well! Payroll will account for a significant proportion of your recurring expenses, so make sure you’re realistic when you’re making your estimating startup costs. In addition, payroll will include other employee-related costs including expenses, bonuses, commission, over time, so make sure you’re prepared. Once again, these estimates will vary depending on the nature of your business – if you’re a sole proprietor, then obviously your payroll expenses are going to be lower than say, a restaurant.


7. Inventory

By now, we’re pretty certain you’ll be starting to see a pattern emerge – the amount you budget for inventory will depend on the type of business you’re setting up. If your business will provide a service, then it’s likely you won’t need to invest in inventory. However, if your venture is manufacturing, wholesale, or retail, then – unsurprisingly – you’re going to need stuff to sell. However, finding the balance can be a challenge. If you buy too much, you risk making a loss – but if you buy too little, you could lose revenue. This is an especially tricky negotiation if your venture is seasonal, where sales may vary depending on the time of year.


8. Marketing

Once you’ve got your space, equipment, and inventory, it’s time to let the world know you’re open for business. Therefore, when you’re planning your small business startup costs, it’s important to factor in marketing. Perhaps your most important investment will be your website. As the Internet is such an important marketing tool, it’s crucial that your website is professional and user-friendly. Thankfully, domain registration and CMS costs are really low – but if you’re not tech savvy, it’s beneficial to hire a web designer. This can be pricey, but if you don’t have the confidence to tackle a DIY builder like Squarespace, it’s definitely worth it. However, the good news is that social media allows you to create powerful marketing content for free. That said, paid advertising placements are useful for reaching people you wouldn’t otherwise.


9. Shipping

Now people know you’re out there, you’ll need to factor in shipping – unless, of course, you run a service. However, if you need to ship out your products to your customers, then it’s important these expenses are taken into account. Costs to consider include packaging, postage, and insurance. Bear in mind that if your product is bulky or valuable, these numbers could run into the thousands. Therefore, it’s important to not skimp in the budget, or you could end up irritating those all-important first-time customers.


10. Travel

Not everyone will need to factor in travel, but if you run a freelance business, this may take up a significant amount of your annual budget. Therefore, you need to calculate all the associated costs, from airfares to hotel rooms, to eating out. Furthermore, if an employee needs to come with you, things can get pricey. However, there are ways you can make your money work for you. For example, researching the best business credit card for travel points is a great way to earn air miles and manage your small business startup costs.