The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
Launching a business is thrilling – what’s not to love about ditching the 9-5 and doing something you’re passionate about?
But before you can transform your idea into a full-fledged business, it’s essential to consider your finances with an open-minded and realistic attitude. After all, the last thing you want is to be overly optimistic and burn through your capital before revenue starts rolling in.
Luckily, you’ve come to the right place. In this article, we’ll cover some of the expenses to forecast and prepare for and help you answer the question: “How much does it cost to start a business?”
The result? A startup that’s potentially profitable sooner rather than later.
Regardless of your industry, the types of products you’re selling, or whether you’re an ecommerce brand, brick-and-mortar store, or service provider, here are some of the most common business startup costs you may encounter:
One of the first tasks you should tackle after deciding to start a business is listing all these potential expenses.
Then, 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.
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.
The best way to accurately answer the question of “How much does it cost to start a business?” is to research 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.
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.
A cash flow projection estimates how much cash will flow in and out of a business over a specified period, whether monthly or quarterly.
They’re one of the most 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, cash flow projections allow you to anticipate potential cash shortages so you can cut costs or secure additional financing and funding.
If the long list of business startup expenses you’ve compiled feels daunting, don’t panic.
While research shows that most budding entrepreneurs dig into their personal savings (66%), reinvest their sales revenue (30%), or ask for financial support from their friends and family (23%), there are plenty of other small business financing options.1
In fact, many combine different startup funding sources to diversify the risk of starting a business.
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.
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.
Some small business loans, like loans for women-owned businesses, are designed for specific types of entrepreneurs or startups.
Whether you’re hoping to improve day-to-day operations, ramp up your marketing, or stock up on more inventory, learn more about small business loans — including working capital loans and business credit cards.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.