What business startup costs should you plan for: Key examples and financing options

From utility bills and operating expenses to marketing budgets and employee benefits, there are many business startup costs to plan for. Identifying and anticipating these costs is just the first step. Business owners can use key strategies to help calculate the costs of starting a business and project their cash flow. If these expenses seem overwhelming, you can also consider financing options to help you get started.

That’s where this article comes in.

Here, we’ll outline the many costs that come with starting a business, including tips for how to calculate these costs and research funding options.

Examples of startup costs for a business

There are many common small business startup costs to consider — whether you’re running a brick-and-mortar shop or an online store. Regardless of your industry and the types of products you’re selling, it’s important to list and assess these potential expenses so you’re not hit with any surprises as you grow your company.

Some common startup costs for a business include:

• Product expenses — The costs of manufacturing and preparing products for shipment. These expenses might cover supplies, raw materials, and packaging.

• Operating expenses — The costs of keeping your business running. These expenses might cover insurance bills, accounting software, administrative software, and company registration fees.

• Marketing expenses — The costs of promoting your business and building customer relationships. These expenses might cover logo design, content creation, website hosting, flyers, direct mail brochures, and online ads.

• Employee expenses — The costs of hiring, paying, and retaining employees to help run your business. These expenses might cover employee salary, staff benefits, training programs, team-building events, and recruitment fees.

• Office expenses — The costs of maintaining a physical office space. These expenses might cover office rent, furniture, utilities, and insurance.

With all of these expenses to consider, you may be wondering if it’s possible to launch a business with low startup costs. While you might use strategies and business models to curb certain expenses, every business generally comes with costs. For example, some businesses use dropshipping to ship products directly from the manufacturer to the customer and avoid paying for inventory storage or physical store locations. However, dropshipping businesses still may have to account for marketing expenses and certain operating expenses.

Once you’ve made a list of your potential expenses, label them as either one-time or monthly costs. One-time costs will be the initial costs needed to open your business’ doors, such as buying equipment, paying for a business license, or hiring a web developer to build your website. Meanwhile, the monthly costs will include recurring expenses, such as salaries or office rent. Having an idea of both your one-time and monthly expenses will paint a better picture of how much cash you may need at any given time.

How to calculate startup costs for small businesses

Once you can answer, “What are startup costs for a business?” it’s important to know how to calculate those costs. After all, creating a list of business startup costs may be a straightforward exercise, but estimating the actual dollar amount associated with each item is where the real challenge begins. Ensuring the math works out not only validates that your business can be profitable in the first place but also pinpoints what you should prioritize early on when cash is tight.

When learning how to calculate startup costs for a small business, you can begin with these steps:

• Researching every expense item thoroughly. Some, like website hosting or your business license application, will have straightforward costs that you can find online. Others, such as supplies or insurance, may be less clear-cut. Consider digging into industry forums and publications as well as talking to service providers, mentors, or even similar companies to see how much you can expect to pay.

• Account for fixed and variable expenses. Fixed expenses don’t change over time; these might include your lease or mortgage and insurance bills. Variable expenses, such as payroll and shipping costs, can fluctuate based on a range of factors.

• Don’t be afraid to overestimate. Remember: It’s always safer to overestimate your expenses rather than underestimate them. You don’t want to be caught off guard by unexpected costs, which can result in missed payroll or an inability to fulfill orders.

How to identify tax deductions for business startup costs

You may be able to deduct certain business startup expenses from your taxes. This can help offset a portion of those costs. The question is: What startup costs are tax deductible for a business?

According to the IRS, you can deduct up to $5,000 of business startup costs in the first year you report income for that business. So if you spend $4,000 to build your business in 2024 but don’t launch and make money until 2025, you can deduct those costs when you file your 2025 taxes. If your startup costs exceed $5,000, they can be amortized over 15 years.¹

Startup costs you can deduct might cover legal fees, licenses, marketing materials, and business software. However, certain startup costs won’t qualify for a deduction. These might include personal expenses, fines, and research costs.

Navigating business startup cost deductions can be tricky. Be sure to talk to a financial or tax advisor to learn more about your specific situation.

Projecting cash flow for a new business

Projecting cash flow involves estimating how much cash will move in and out of a business over a specified period, whether monthly or quarterly.

Cash flow projections are important tools for businesses to manage their finances and prepare for the future. Instead of simply asking the basic question of “How much does it cost to start a business?”, a cash flow projection challenges you to dig deeper and answer: “How much revenue do I need to keep my business running?”

Ultimately, projecting cash flow allows you to anticipate potential cash shortages so you can cut costs, secure additional financing and funding, and maintain a profitable business.

Small business financing options to help with startup costs

If the long list of startup business costs you’ve compiled feels daunting, don’t panic. There are many small business funding options that you can use to help cover some of these expenses. Some business owners, for example, might turn to their personal savings, crowdfunding initiatives, or friends and family for assistance.

Outside of these options, however, small business owners might consider loans and other forms of financing to help with startup costs. They might even combine different startup funding sources to diversify the risk of starting a business.

Learn more about small business loans for startups here.

Small business loans for startups

A small business loan is a type of financing offered by banks, credit unions, or online lenders to provide startups with additional cash flow to get off the ground. Whether you’re hoping to improve day-to-day operations, ramp up your marketing, or stock up on more inventory, there are many types of small business loans for startups.

For example, common forms of business financing include:

• Traditional small business loans — Small business loans are generally received as a lump sum and paid back in set installments, plus interest, over time. Some small business loans, like Small Business Association (SBA) loans and loans for women-owned businesses, are designed for specific types of entrepreneurs or startups.

• Working capital loans — Working capital loans are short-term business loans used to cover immediate operating expenses, such as during a seasonal drop in sales.

• Business credit cards — Business owners can use business credit cards to more easily pay for and track company expenses, as well access specific rewards and perks for their business.

• Lines of credit — Similar to a credit card, a business owner might use a line of credit to borrow money up to a certain credit limit, and pay it back each month. With a line of credit, you only have to pay interest on what you borrow.

Wondering how to apply for a small business loan? It’s not as complicated as you may imagine. Depending on the type and terms of the small business loan you’re seeking, your lender will evaluate factors such as your creditworthiness, industry, or business age. Just remember to research each lender’s loan terms, including their repayment periods, interest rates, and any added fees.