Business Planning

Startup Costs: How Much Does It Cost to Start a Business?

Read Time: 6 min

Creating a business is an exciting venture in any small business owner’s life but there are startup costs to this milestone to be aware of. Some entrepreneurs don’t realize what it costs to start a business. In the beginning, it can be difficult to determine the initial costs of starting a company. There are many reasons young businesses fail early on, many accounting for a lack of financial strategy. Startup costs are critical to evaluate because they are the very beginning of your enterprise’s financial planning and budgeting. To ensure a good cash flow, you need to understand what you will need in startup costs for your operations.

What are Startup Costs?

Startup costs are the expenses a new business owner must pay when creating a business, including one-time costs, and ongoing expenses. While these costs fluctuate depending on location, type of business, etc. there are general startup costs that each business owner will find themselves paying. It’s imperative that you recognize these costs upfront rather than later down the road.

Why you need to calculate the cost to start a business

how much to start a business

Overlooking what you should pay in startup expenses can prevent you from succeeding at your business goals. You cannot assume that a rush of customers will keep your business afloat. You need to know what it will cost you to set up your business first. That includes planning for ancillary expenses that you may not have budgeted for. Financial planning for your small business is an essential step for running operations.

So, how much does it really cost to start a business?

That all depends on the type of business you start and the business structure you choose. A business can be established in one of several forms:

  • Sole proprietorship
  • Limited liability company (LLC)
  • Corporation
  • Partnership

For example, the basic structure of a sole proprietorship can be established easily without the need to register it legally. However, sole proprietors assume a greater risk with respect to liability. While the start-up costs may be minimal, the business holds a far greater risk of being sued.

Therefore, what you pay in start-up costs begins with the type of business structure you establish.

Types of Startup Costs

When it comes to figuring the cost to start a business, you need to break down the costs by classifying them under their respective types. Some of the costs will be one-time while others will be ongoing, such as the fees you pay to register and maintain a business entity.

Let’s narrow down these costs further.

One-time Basic Start-up Costs

Startup costs that do not occur on a continual basis can be the trickiest to predict for new business owners. Depending on if you’ve started a business before, these costs might blindside you.

Some of the basic one-time costs for starting a business include:

  • Business registration and licensing
  • Equipment costs
  • Logo design
  • Domain registration
  • Initial start-up utility costs

Ongoing basic startup costs

Again, depending on if you’ve run a small business before, you may be familiar with these recurring expenses. If not, they will need to be accounted for in your budget.

The basic start-up costs that you will continue to pay include monthly expenses, such as:

  • Payroll
  • Rent
  • Utility payments
  • Advertising
  • Equipment rental

By adding your one-time expenses to your monthly costs, you can see just how much capital you will need to start your business and continue operating.

Factoring Startup Costs Before You Take the Deep Dive

Before you take the plunge and open your business, you need to factor in all your startup costs so you know what to expect. The main expenses you will assume include your business fees and registration costs, payroll expenses, and taxes. What you will pay will, again, depend on the nature of your business and where you operate it from.

Business fees and registration

how much does it cost to start a business

To ensure that your business keeps operating, you need to pay certain fees and registration costs. If you set up your business as a limited liability company (LLC) or corporation (a C or S corporation), you will need to register the business with the state and pay the applicable fees.

Part of the cost for registration includes choosing a business name for your business. For example, if you set up an LLC or corporation, you do not need to pay a separate amount for registering a business name. However, you do need to pay a separate cost for registering the name of a partnership. Payment must be made, as well, for local licenses and permits, such as those required for restaurants or retail outlets.


An ongoing cost that extends past your start-up period includes the expense incurred for paying employees. Remember, you still need to pay your employees during the early phases of your business, even when you do not bring in much money.

Some of the costs may include:

  • Net pay
  • Commissions
  • Bonuses
  • Overtime earnings
  • Paid time off

Naturally, the costs for processing your payroll will differ, depending on the startup. Usually, an employee will cost about 1.4 times their annual salary. For example, if you pay an employee $30,000 per year, it will basically cost you about $44,000 after you factor in payroll expenses, such as insurance and taxes.


Taxes represent one of the expenses you will pay with certainty, at the beginning of your business and on a continual basis. You will be responsible, as a business, in most cases, for the following taxes.

Income taxes

All U.S. businesses need to file a yearly income tax return. While C corporations pay their income tax at a designated corporate rate, other businesses pay taxes as pass-through entities, and the IRS taxes them at an individual rate.

Estimated taxes

If you work as an independent contractor, freelancer, or small business owner, and expect to owe at least $1,000 for taxes, you need to estimate and remit payments for quarterly taxes. Don’t overlook paying these taxes, as the IRS can slam you with some stiff penalties and interest if you don’t pay them.

Employment taxes

Self-employed people need to remit self-employment taxes to cover Medicare and Social Security. You must pay these taxes if your net earnings begin at $400 or more.

If you have employees, you need to pay employment taxes, including:

  • Social Security and Medicare taxes
  • Federal unemployment tax (FUTA)

In addition, you need to make sure you report the federal income withholding tax technically paid by each employee to the IRS.

Excise taxes

Depending on your business, you may have to pay an excise tax. These taxes are placed on specific goods or products, such as gasoline and alcohol. Typically, the product’s price includes the tax. Excise taxes may also be added to activities, such as gambling or wagering.

Cash: How Much Does It Cost to Start a Business

As noted, the easiest way to figure how much cash you will need to start a business venture involves adding the initial startup costs to the ongoing monthly expenses. You need to know this information so you can:

  • Estimate profits
  • Perform a breakeven analysis
  • Obtain loans
  • Save money using tax deductions
  • Attract investors and venture capital

Most businesses fall under the categories of online companies, service providers, or brick-and-mortar locations. Therefore, each business has specific costs related to its type of operation. Again, if you want to determine your cash needs, you will need to add the initial startup expenses with the monthly costs you will ensue for your operations.

If you’re feeling overwhelmed, there are plenty of funding options out there for your business. The most popular resource to consider is a business loan to help get your small business off the ground.

Final Thoughts

Starting a business is a major step for anyone with an entrepreneurial vision. However, every dream comes with a set of costs. Recognizing and planning for startup costs ahead of time will put your business in an advantageous position. Whether the expenses are one-time or ongoing, knowing the general cost of what you’ll be paying with help you in the long run. Forgoing this crucial step can result in limited cash flow and other problems later on. Now that you’re aware of the cost of starting a business, you can begin strategizing your own business with a renewed vision.

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