Costs of setting up a business: what to expect

Starting and running a business can be expensive, and a lack of capital can derail an otherwise solid idea before it has a chance to take root. According to the Bureau of Labor Statistics (BLS), up to a quarter of businesses don't make it to their first anniversary, with money issues being a primary reason for failure. 

Fortunately, you can increase your odds of success by accurately projecting your initial and ongoing expenses, securing adequate funding, and managing your financial resources efficiently. We'll explain how to create an accurate business budget, reduce your company's expenses, and secure the financing you need to launch and operate. That way, you can achieve your entrepreneurial dreams.

Why knowing your projected startup costs is essential

Understanding how much money you’ll need to launch your business helps ensure you don’t run out of cash before you land your first customers. But accurate projections also help you:

• Calculate your breakeven point, so you know how many sales are required to become profitable
• Secure loans or attract investors who want confidence that their money is well-placed
• Plan for taxes by identifying deductible business expenses

Because every business and financial situation is different, it’s wise to consult a financial or tax professional for guidance tailored to your needs.

How to calculate the costs of setting up a business

You can estimate your start-up costs by following these steps:

1. Create a tracking system. A spreadsheet works well, but a document or even handwritten notes can do the job if you prefer simplicity.
2. Separate expenses into one-time and ongoing costs. Use the guide below as a starting point, then customize it to reflect your business model.
3. Categorize each expense. Group costs by type—equipment, marketing, utilities, insurance, legal, and so on—to better understand where your money will go and to simplify bookkeeping later.
4. Estimate each cost realistically. For ongoing expenses, project at least 6–12 months of operations. Supplement estimates with research, quotes, or insights from other business owners.
5. Label expenses as essential or optional. Essentials are required to launch; nice-to-haves can be delayed if funds are tight.
6. Add everything up. First, calculate total projected costs. Then calculate the minimum required to launch by summing only essential expenses.
7. Add a buffer. Increase your totals by about 20% to account for unexpected costs. Overestimating is far safer than falling short.

Important note: Your business budget isn’t static. Review and update it regularly as your costs, goals, or market conditions change.

Business startup costs: A general guide

Start-up costs vary widely depending on your industry, location, size, and offerings. That said, many new businesses can expect to budget for some combination of the following:

• Equipment (computers, vehicles, machinery): thousands of dollars, potentially six figures or more
• Incorporation fees and licenses: several hundred dollars
• Office space: up to several thousand dollars per month, depending on size and location
• Inventory: varies widely; may reach tens of thousands of dollars per month
• Marketing (branding, website, ads, signage): at least a few thousand dollars upfront
• Furniture: several thousand dollars if purchased new
• Office supplies: roughly $100 per employee per month
• Software: $100+ per month, depending on tools used
• Utilities: hundreds of dollars per month or more
• Payroll: approximately 1.25x base salaries to cover taxes and benefits
• Professional services or legal fees: $100+ per hour
• Business insurance: thousands of dollars per year
• Taxes: varies by structure and location; federal corporate tax is currently 21%
• Shipping and travel: varies based on business operations

Not every expense will apply to every business, and some costs may be missing depending on your situation—but this list provides a practical baseline.

How to lower your start-up costs

To keep expenses manageable, consider these strategies:

• Delay non-essential purchases until you generate consistent cash flow
• Operate remotely or from a co-working space if possible
• Hire contractors for specialized work instead of full-time employees
• Ask employees to take on multiple responsibilities early on (within reason)
• Buy used furniture or equipment when appropriate
• Use free or low-cost software tools whenever possible
• Lean on organic marketing through social media, content, or email
• Negotiate discounts with vendors for early payment or long-term agreements

Pro tip: Track every dollar daily. Consistent monitoring makes it easier to spot trends, rein in spending, and pivot quickly.

How to cover your start-up costs

Using personal savings or investments

Using your own savings is one of the simplest ways to fund a start-up. There’s no application process, interest, or repayment schedule—but you assume all the risk. This option works best if you have sufficient reserves and won’t jeopardize your personal financial security.

Receiving cash from family or friends

Funding from loved ones may come as a loan, gift, or informal investment. Terms can be flexible, but it’s critical to document expectations clearly to avoid misunderstandings or strained relationships.

Taking out a small business loan from a bank or online lender

These loans provide upfront capital repaid through fixed monthly payments. Traditional lenders often require strong credit, income, and collateral, while online lenders may be more flexible—but usually charge higher interest rates.

Applying for an SBA-backed business loan

SBA loans are issued by lenders and partially guaranteed by the government, often resulting in lower rates and longer repayment terms. However, they come with stricter requirements, detailed documentation, and longer approval timelines.

Using business credit cards or lines of credit

These options offer flexible access to funds but typically carry higher interest rates. Approval for new businesses often relies on personal credit, making them better suited for short-term or smaller expenses.

Using personal credit cards or personal loans

Personal financing can provide fast access to cash but requires repayment regardless of business performance. It also increases personal financial risk and can complicate accounting if funds are mixed.

Raising funds through crowdfunding

Crowdfunding allows you to raise capital online in exchange for products, equity, or rewards. While repayment isn’t always required, success depends heavily on marketing, storytelling, and audience trust.

Tapping into your home equity

Some homeowners use home equity to fund a business through a home equity loan, HELOC, or home equity investment. Home equity loans and HELOCs require monthly payments, while home equity investments provide upfront cash with repayment settled later based on a slice of the home’s future appreciation.

Because your home is involved, understanding the long-term implications is critical.

The bottom line

Launching a business is exciting and rewarding—but it’s rarely cheap. By carefully planning your expenses, trimming unnecessary costs, and choosing the right financing strategy, you can set yourself up for long-term success. Working with an experienced accountant or financial advisor can also help you stay on track as your business grows.