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How Much Does It Cost To Start Up A Small Business?

How Much Does It Cost To Start Up A Small Business?

Small business start up costs can vary greatly depending on the type of business involved and the amount of capital initially required to get up and running. There is no magic formula to determine what the costs will be as it is directly tied to the type of business involved and how much you have in terms of financial resources. Some businesses might require a small business loan while others may have investor backing but the total cost to start a small business will depend on you and your ability to maximize resources while minimizing expenses.

At a bare minimum, most small businesses will require a few thousand dollars of initial capital to fund even the most basic business necessities. This is because almost every business that can be conceived of, even if operating a home-based business, will require certain state licenses and registrations including filing fees and articles of incorporation. In order to protect yourself and your assets most individuals will form a Limited Liability Company which will provide protection against lawsuits which could cripple individuals financially. Forming an LLC often costs a few hundred dollars or less to file with the State Corporation commission.

If you're going to be the next Apple or Google and are starting your future multinational multibillion dollar corporation out of your garage or home office there are certain state licenses required to operate a home business. There will normally be a fire inspection fee as well as liability insurance in order to protect yourself and your business. Again this will vary by municipality, so be sure to check with your local Chamber of Commerce and city hall to determine if you're in compliance and have all requisite inspections and licenses.

What hasn't been discussed so far is the type of business you will be starting and what your initial capital outlay may involve. A home-based business offering copy-writing services or remote technical support may require only a fax machine and a laptop. If you're manufacturing a product such as various crafts to sell on Etsy.com then obviously purchasing supplies may possibly cost hundreds or thousands of dollars depending on the scope of your manufacturing and anticipated sales. Service-based businesses often require significantly less initial upfront investment since the only cost is your time and effort. Product based businesses will usually require purchasing inventory or supplies and can run into initial capital of ten of thousands of dollars.

While not a guarantee of success, every successful business will have a well thought out and vetted business plan. A business plan provides detailed planning and information on anticipated expenses and operating costs which hopefully prevent being blindsided and caught short of funds. The federal government Small Business Administration provides significant online and in person resources which cover these topics in detail. Be sure to thoroughly read and understand all provided documentation as the more prepared you are when starting your small business the more likely you are to be successful.

Most new small businesses, approximately 50%, fail within the first year of operations and the primary reason is usually cash flow. What this means is that the business was established successfully by selling product and attracting customers but the amount of money coming in was not sufficient or timely enough to pay creditors. Properly anticipating and understanding cash flow needs is crucial to operating a successful and growing small business. When determining how much it costs to start a small business be sure to include an additional 20% to 30% to account for daily operations and monthly cash flow shortages. It's analogous to having an emergency fund for individuals and families to guard against unforeseen expenses. Most small businesses fail from being undercapitalized so be sure to factor in worst-case scenarios and have enough funds to get your small business through the lean economic times.

No entrepreneur really knows how much it will cost to start a small business until they have completed a thorough business plan. Even if it is a small business that is self financed, a professional business plan will make sure you've considered all possible scenarios and anticipated all expenses. Your business plan may also come into play later as your company grows since you may require additional loans or investments. Don't let your new small business become another economic statistic. As the saying goes, no one plans to fail they only fail to plan, so the more time you spend researching and seeking professional advice from multiple nonprofit organizations the more successful you are likely to be in your endeavor.

Image by: Robyn Lee