There’s certainly a lot to consider when you’re planning to start your own business, from hiring people for your team to finding your first clients. However, there’s definitely one element that you’ll need to stay on top of from the very beginning — your budget. So how much does it really cost to start a business?
According to the Small Business Administration, most microbusinesses cost around $3,000 to start, while most home-based franchises cost $2,000 to $5,000. And to help you calculate the cost of starting your own business, we’ve listed the different expenses you’ll face when you do so.
Office Space
Unless you plan on operating your business at home, one of your biggest initial expenses is office space. There are several elements that will determine the cost of your office space, such as vacancy rates and cost of living. On average, it costs about $34 per square foot to rent an office space in the U.S., but you can opt to work from home or look into coworking spaces in the beginning to reduce your initial expenses. Membership fees for coworking spaces are usually around $190 per person per month, and there are different tiers of memberships that grant different benefits.
Employee Compensation
When it comes to paying your employees, there’s a lot more than just giving them their net pay. There’s also overtime pay, paid time off, benefits, employment taxes, and much more. We can’t tell you exactly how much you’ll be paying your employees, as that is on a case-to-case basis. But the Bureau of Labor Statistics estimates that wages and salaries for private employees average at $25.18, while benefits are approximately $10.79, and account for more than 30% of employee compensation.
And if you don’t plan on hiring any employees just yet, you still have to worry about your own compensation. It’s important to also consider this when computing your budget.
Legal Fees
The legal fees you’ll have to pay generally depend on the type of business you’re looking to set up. The costs involved with starting a limited liability company tends to vary state by state, with fees starting from $40 to $500. Depending on where you are starting your business, there are filing fees, business license fees, name reservation fees, and publication fees you’ll need to consider. Meanwhile, incorporating your business can cost anywhere from $50 to $725, depending on the state. Some types of businesses also require other permits and fees. For example, businesses that sell or serve alcohol need to acquire an alcohol permit to operate. There are also businesses within the agriculture or aviation sectors that require federal licensing.
Business Insurance
As you start your business, it’s important to consider getting proper insurance coverage to help protect both your business and yourself in the long run. The need for various insurance policies will definitely increase as you go on with your business. There are different policies to consider, and how much you spend on one is based on numerous factors, including the size of your business, its location, revenue, and more. You can easily spend $1,000 or more per policy per year.
Marketing
Marketing is an important part of any business. This is because your marketing strategy can be a major factor as to whether your business idea will become a success or failure. For your marketing costs, there are printed marketing materials such as signs, banners, and business cards to account for. You might also consider paying for advertisements, which might require you to hire a producer or consultant.
The good news is you can keep your marketing costs low by utilizing social media sites like Facebook and Instagram. This way, you can market your business for free until your business starts generating sales.
Adding Up Your Expenses and Getting Funding
When you’re adding up and budgeting for your business expenses, it’s much better to overestimate than underestimate variable costs. But when it comes to fixed expenses, you should aim to be more precise.
Once you’ve accounted for all your costs, it would be a good idea to create a formal report to outline just how much it will cost to start your business. Make sure your report is clear, concise, and easy to understand not just for yourself, but also for lenders and investors.
