How Much Does it Cost to Start a Business?
How much does it cost to start a business? Deciding to start a business is very attractive, but it can be quite scary if you are an entrepreneur for the first time.
If you are intending to start a new business, it is crucial to understand the startup costs that may come along your way.
Here’s a rough estimate of the amount of money that you will probably require to set up your business.
How Much Does it Cost to Start a Business?
The average startup and first-year costs are estimated to be between $30,000 and $40,000.
On the other hand, it is possible to start a business with no money, or just $100 or $1,000, or even millions of dollars.
A business without inventory on the internet may only require several hundred dollars for a website and marketing.
However, the starting capital for an online business is not as high as the brick-and-mortar one, which needs hundreds of thousands of dollars for a location, furniture, and equipment.
Some businesses also have variable costs such as products and staffing, which increase as the sales do.
After you have calculated the startup cost of your particular business, you can apply for startup funding or SBA loans.
Financing is a type of assistance that businesses use to settle costs that are incurred before the start of revenue.
The key is to save money for the business as soon as possible.
Kauffman Foundation’s study shows that this amount is around $30,000, and the price tends to increase each year.
Luckily, small businesses like micro-businesses and home-based businesses usually have fewer financial obstacles to overcome.
How to Secure Funding for Your Business Startup
Securing funding for your business startup involves several strategies:
1. Personal Savings
Most of the time, you will rely on your savings, which you have saved from your previous jobs, business ventures, or real estate investments, to start your enterprise.
This method provides independence and freedom to take control of your finances, as the majority of start-up entrepreneurs use their personal savings to begin their business.
2. Financial Assistance from Friends and Family
Making use of the support of friends and relatives who also have the same vision as you is a big help in getting the startup funds for your business.
As many as one in four entrepreneurs will use this option, relying on the goodwill and backing of their friends to get started.
3. Personal Loans
The fact that you can borrow money from banks to fund your startup is one of the options you have.
Around 21% of small business owners opt for this option, so they can get access to capital as well as avoid the personal liability that comes with paying back.
4. Merchant Cash Advances
As an alternative to traditional funding, you can look for startup funds through merchant cash advances. The repayment is structured in such a way that you pay a percentage of your sales.
Differently, you will be able to maintain ownership of your business and have your loans repaid automatically from your sales proceeds.
5. Crowdfunding
Crowdfunding is another option that allows you to amass considerable sums of money from many people via the Kickstarter, Wefunder, and Indiegogo platforms.
Different from loans, you don’t need to return it. Nevertheless, it is a challenging task that involves careful planning and coordination because of its complexity and duration.
6. Venture Capital
For businesses with innovative products and bold growth aspirations, venture capital firms can provide both funds and expertise in addition to investment.
Although this path provides a lot of space to expand the business, it requires intensive due diligence, lots of paperwork, and a strategy of aggressive growth in exchange for equity in the business.
How to Calculate the Startup Cost of a Business
The best way to estimate your business startup costs is to write a business plan.
The financial projections section of your plan should estimate your revenue, profit, and expenses for the next three to five years.
There are other resources available to help you estimate your finances, such as the SBA’s startup costs worksheet.
Templates will assist you in estimating your initial investment costs so that you know how much capital to request when seeking startup funding.
Remember that many of the startup costs listed below are recurring.
You’ll need to budget for these expenses on a monthly, quarterly, or annual basis.
For example, rent, office supplies, and payroll.
Other costs, such as the incorporation fee or office furniture, are one-time.
A good rule of thumb when calculating your business startup costs is to be able to cover six months’ worth of expenses upfront.
So, don’t expect your company’s revenue to start easing your costs until after that initial period has passed.
You’ll need some padding while you get your bearings and work on attracting business.
What are the Different Varieties of Business Costs?
The initial costs incurred by small businesses vary greatly. After all, you can look for businesses that can be started with $1,000, but that is not for everyone.
Some costs are fixed and fairly predictable, whereas others vary greatly.
Though not all of these will apply to your specific idea or industry, here are some common business costs to consider for entrepreneurs:
1. One-time Costs
These are expenses you only pay once, such as fees for registering your business or buying a domain name for your website.
Think of them as ‘one-and-done’ investments.
2. Fixed or Ongoing Costs
These are the steady expenses that stay the same no matter what.
For instance, if you’re renting a space for your business, the rent stays consistent whether you’re producing a little or a lot. These costs are like the bills you pay regularly, like rent or insurance.
3. Variable Costs
These costs go up and down with your level of production or sales.
For example, if you’re making more products, you’ll need more raw materials, which means higher variable costs.
Variable costs are like the ingredients in a recipe – the more you cook, the more you need.
4. Essential Costs
These are the must-have expenses to keep your business running.
They’re the basics that keep the lights on, like buying inventory or paying employees. Without these, your business wouldn’t survive.
5. Optional Costs
These are the ‘nice-to-haves,’ not essential for survival but can add value or enjoyment.
Things like throwing a fancy launch party or splurging on office decorations fall into this category.
In general, expect to spend thousands of dollars per month on each employee.
Is it Possible to Start a Business with No Money?
It is entirely possible to launch a new business with no capital. However, it is dependent on your particular business idea and niche.
And your strategy may need to be tweaked until you start making money.
There are numerous resources available that will teach you how to start a business from home with no money.
For example, if you want to start an online business as a life coach, you should first establish your brand on Facebook or Instagram.
After you start earning money from clients, create a website and begin advertising.
One of the most stressful aspects of running a business is creating a budget. However, be realistic about estimating your business startup costs.
Knowing how much money you may need to borrow right away will help you get your company up and running.