If you're wondering how much money does it cost to start a business, it's important to understand there's really no hard and fast rule. There's no one budget amount that can accommodate every possible type of entrepreneurial activity, nor is there any hard and fast rule about the amount of capital you should have on hand to start a business. The best way to figure out how much money does it cost to start a business is to tally up the total costs and estimate how much money you'll need in the bank to cover your salary until your company turns a profit.
How Much Money Does It Cost to Start a Business?
Famous entrepreneurs didn't attain their success overnight. It often takes many years before a business turns a profit. Will you have enough capital to see your business through the lean years? Consider the following start up costs and plan accordingly.
Cost Categories
A business needs a roof over its head, technology, people, professional services and depending upon the nature of the business, merchandise to sell. These categories may be loosely broken down as follows:
- Infrastructure: Do you need to rent office space or store space? How much will this cost?
- Technology: What computer equipment, websites, telephones, fax machines and other technology do you need to get started?
- People: Do you need to hire workers? What salary will you pay them? Don't forget about taxes and benefits, if you plan to offer employee benefits.
- Merchandise: If you're starting a retail store of any kind, a restaurant or food and beverage business, you will need to purchase materials to sell. How much will you spend?
- Office supplies: Paper, pens, ink cartridges, and more…office supplies quickly add up.
- Professional services: You'll need at the very least an attorney to help you structure your business, an accountant to help you with taxes and bookkeeping, and possibly insurance.
As you can see, the costs of starting a business mount quickly. Some businesses cost less to start than others. A consulting service, for example, costs the least to establish. You can use a home office and a simple computer and telephone to get started; the labor is all your own time, and you can pay yourself whatever salary you think you can make profitably. You won't need to spend a lot of money on merchandise to sell nor do you need expensive or fancy office space.
Conversely, retail businesses are often the most expensive to start. Most retail businesses rent store space in desirable locations such as strip malls, shopping malls or other storefronts. You'll need to invest heavily in your merchandise. Most brick and mortar stores hire part time workers so you will also need to account for salaries. And insurance is a must when you welcome foot traffic into your store, both to protect against losses such as fire and flood as well as to protect your assets in case someone trips, falls and decides to sue you.
Always Have More Cash Than You Think You Need
Ask any entrepreneur how much money you need to start a business, and they'll say, "More than you think you need." Whatever figure you come up with when you tally all the potential expenses, double it. All sorts of unanticipated costs occur for start up businesses. It's important to have a substantial cash reserve to cover any and all contingencies.
All would-be entrepreneurs should have several months, if not years, of salary in the bank to live off of while their companies get started. You don't know when your company will turn a profit; it may take a month, a year, or several years. Make sure you have enough money set aside to pay your mortgage, living expenses, health insurance bills and any other personal expenses. This way, you can focus on growing your fledgling company and not worry about how you'll pay your rent this month or pay for your child's medical bills.
Can You Start with Nothing?
Can you start a business without any cash outlay? It's possible to start an Internet business and sell merchandise as an affiliate with very little cash needed, but you will need to spend some money to acquire a computer and set up a website. Some Internet entrepreneurs began their companies by purchasing a domain name, setting up a website or blog, and selling books and other products through affiliate programs such as Amazon.com and other affiliates. It's possible to make money this way, although not easy. The initial cash outlay for such a business is low. You'll need a computer, a fast Internet connection, and some money to pay for domain names, website hosting, and other start up costs.
If you dream of being your own boss or becoming the next great entrepreneurial success story, hold fast to your dreams. Give it your best effort. Save every penny you can while you're working full time so you have a good cash reserve on hand for your personal expenses while courting investor capital. There's always room for good ideas in the business world, and you may in fact be the next Bill Gates, Mary Kay Ash, or another entrepreneur.
