How much money do you need to start a business? This is a question that many entrepreneurs ask, and the answer can vary depending on the type of business you want to open. Some costs are common to all businesses, like liability insurance and licensing fees, but other costs will depend on your specific business. For example, you'll need to pay for rent, utilities, and inventory if you're opening a physical store. If you're starting a full-time online business, your main expenses will be website hosting and domain registration.
Shopify, the number one platform for eCommerce small businesses, surveyed over 300 business owners; they found these small business owners spent an average of $40,000 in their first year of business. They point out that this doesn't necessarily mean you need an extra $40k laying around, and most small businesses incur these costs as the price of doing business in their first year.
Regardless of the amount of money you need to start a business, starting small and growing your enterprise over time is essential. The most successful businesses usually have been around for a long time, so don't worry if you don't have a lot of money at the beginning. You can always find ways to save money, like using credit cards to finance your start-up costs. Most small business owners will tell you starting your own business can be scary but altogether rewarding. Knowing how much money you'll need to start your own business is crucial so let's look at the average costs for each type of business.
Brick and Mortar Stores
The average cost of opening a brick-and-mortar store is between $50,000 and $500,000. Of course, this number can vary greatly depending on the size and location of your store and if you'll need additional office space. If you're opening a small shop in a rural area, your start-up costs will be lower than opening a large store in a major city. In addition to the cost of renting or buying a storefront, you'll need to pay for utilities, inventory, property insurance and employee salaries. You should also factor in the cost of marketing and advertising to attract customers to your new business.
Franchise Businesses
If you're interested in starting a franchise business, you'll need to pay the franchisor's initial fee. This fee can range from $50,000 to $100,000, giving you the right to use the franchisor's name and business model, eliminating much of the initial business start-up costs. In addition to the upfront cost, you'll also need to pay royalties to the franchisor every month or year. These royalties are typically a percentage of your sales and cover the costs of marketing and support services that the franchisor provides. Franchises are also one way of reducing marketing costs. The franchise contract often includes print marketing, and sometimes digital marketing.
Online Businesses
Opening an online store is a great way to start a business with a lower cost of entry. The average cost of starting an online store is between $500 and $2000, and most of these fees are monthly expenses rather than one-time costs. This includes the cost of website hosting, domain registration, and any other necessary software or tools. You may also need to pay for marketing and advertising to get your website seen by potential customers.
The benefit of online stores and businesses is that you don't need much in the way of real estate or office supplies. Start-up funding is usually much less for online stores. Ecommerce is steadily growing, with Morgan Stanley reporting that online retail accounts for 22% of all shopping in 2022, compared to only 15% in 2019. It's clear that ecommerce is here for good.
Starting a Restaurant Business
If you're considering starting a restaurant business, you'll need to factor in the cost of leasing or buying commercial kitchen space. You'll also need to pay for equipment, inventory, employee salaries, marketing, and liability insurance. Some important things to consider when opening a restaurant are the wholesale cost of food and business insurance. Fit Small Business suggests breaking down your intended menu by price per meal; this will help you estimate some of the costs you can expect down the line. Experts at Fresh Books say you can expect to pay between $159 and $178 per square foot of your restaurant space. If you're buying the space, that would be a one-time expense; however, most restaurant owners lease their space which adds to their business expenses.
Mobile Service Businesses
If you're starting a mobile service business like a mobile car washing and detailing business, your start-up costs will be lower than if you were starting a brick-and-mortar business. You won't need to pay for office space, and you may be able to use your personal vehicle for work. However, you must pay for liability insurance, gas, and marketing. The average start-up cost for a mobile service business is between $2000 and $5000, with the bulk of that expense being for equipment. Keep in mind you'll still need a business license for this business model.
Business Plans for New Businesses
No matter how much money you need to start your business, it's crucial to have a solid business plan. A well-written business plan will help you secure funding from investors and lenders. It's also a helpful tool for keeping yourself organized and on track as you get your business off the ground. This document will outline your goals, strategies, and how you plan on making your business successful.
If you're unsure how to write a business plan, plenty of resources are available online and in libraries. You can also hire a professional to help you with this task. The cost of hiring a business plan writer varies depending on the scope of the project. New business owners can learn a lot by writing a thorough business plan that includes start-up expenses and variable costs.
Low-Cost Business Ideas
There are plenty of businesses you can start with a low cost of entry. Inc. recommends letting your interests dictate your new business idea. If you're particularly good with finances, look into accounting software and start a bookkeeping business. If you're a writer, offer your professional services freelance. Don't let your bank account slow you down, you can start a business with limited funds.
Here are a few ideas to get you started:
starting an online store
starting a blog or podcast
starting a YouTube channel
becoming a social media influencer
creating an app or software program
becoming a virtual assistant to CEOs
offering freelance services such as writing, graphic design, or web development
becoming a pet sitter or dog walker
starting an errand running or delivery service
starting a home cleaning business
offering laundry and ironing services
becoming a personal trainer or fitness coach
starting a garden maintenance business
offer carpentry, painting, or handyman services
becoming an online English tutor
offering bookkeeping services
Getting a Business Loan
If you don't have the money to start your business, you may be able to get a small business loan. There are many options available, and the best option for you will depend on your credit score, how much money you need, and what you're using the loan for. Some common types of loans for small businesses are small business administration loans (also called SBA loans), business lines of credit, business credit cards, and equipment financing. You can also look into crowdfunding or ask family and friends for investment. The Small Business Administration has a helpful calculator for new business owners to estimate their costs.
Business grants are another great way to get funding for your business, depending on your business structure. These are typically given by government organizations or private foundations to help businesses in specific industries or regions. Grants usually come with strings attached, so make sure you read the fine print before applying.