How much does it cost to start a business?

What costs should I plan for?

The SBA lists the startup costs most businesses face, whatever they sell. Go through them one by one and cross out the ones that do not apply:

• Office or work space, utilities and communications
• Equipment and supplies
• Licenses and permits
• Insurance
• A lawyer and an accountant
• Inventory
• Employee salaries
• Advertising and marketing, including printed materials
• Market research
• Making a website

A service run from home might need only a few of these. A product business usually needs most of them, and inventory is often the biggest line.

How much are the government fees?

Fees vary by state and by structure, so check your own state's filing office. For a sense of scale, the SBA says the total cost to register a business is in most cases less than $300. An EIN from the IRS costs nothing. A few official examples for forming an LLC:

Add local business licenses, any industry permits and a seller's permit if you sell taxable goods. Many of these have published fees, which makes them the easiest part of the budget to pin down.

How do I estimate my startup costs?

Split every expense into two groups, as the SBA suggests. One-time costs are things like equipment, a logo, permits and your first inventory. Monthly costs are rent, software, insurance premiums, salaries and utilities. Count at least one year of monthly costs; the SBA calls five years ideal for a loan application.

For uncertain costs, ask suppliers for quotes and ask people who run similar businesses what they pay. Then add the two groups together. That total is the money you need available, from savings, a loan or early sales, before the business pays for itself.

Some startup spending also lowers your taxes. The IRS lets you elect to deduct up to $5,000 of business start-up costs and up to $5,000 of organizational costs in your first year; the $5,000 is reduced once those costs pass $50,000, and the rest is deducted over time. Keep every receipt.

Can I start a business with almost no money?

Yes, if you choose the shape of the business carefully. The cheapest starts share a few traits:

• Sell a skill before a product. A service needs no inventory, and your first clients can fund your tools.
• Take payment before you buy. Preorders, deposits and made-to-order products let customers fund the stock.
• Start under your own name. A sole proprietor using their own legal name usually does not need to register with the state, which you can change later.
• Use free official help. The EIN is free, and SBA-funded advisors at Small Business Development Centers and SCORE are free or low cost.

What you should not skip, even on a tiny budget: the licenses your activity needs, insurance if someone could get hurt, and a separate account to track the money. If you need outside money later, see how to fund a small business.

Should I use my savings or retirement money?

Self-funding keeps you in full control, but you carry all the risk. The SBA warns to be especially careful about tapping retirement accounts early, which can bring fees, penalties and a later retirement, and to check with your plan's administrator and a financial advisor first.

A safer pattern is to fund a small test from money you could afford to lose, then put in more only after customers have paid. Your break-even number, covered in how to price a product or service, tells you how many sales that takes.