How Much Does It Cost to Start a Small Business?

The honest answer to how much it costs to start a business is that it depends almost entirely on what the business is. A consultancy run from a laptop and a bakery with a storefront are not the same question. What is consistent is the shape of the costs, and that is what this guide covers.

There are three categories. One-time setup costs, recurring monthly costs, and the runway you need before revenue covers those recurring costs. Most people budget for the first and are caught out by the third.

One-time setup costs

These are the costs of coming into existence. They happen once and then stop.

Formation and registration

If you form an LLC or corporation you pay a state filing fee. These range from under $50 to several hundred depending on the state, and many states charge an annual report fee afterward. Sole proprietors filing an assumed name certificate with a county Register of Deeds usually pay considerably less.

Your EIN is free. The IRS issues it online in minutes and says explicitly that you never pay for one.

Licenses and permits

Highly variable and entirely dependent on activity. A freelance designer may need nothing beyond registration. A food business needs health permits, and anything involving alcohol, childcare, construction or healthcare carries its own regime. This is worth checking before you budget rather than after.

Equipment and initial inventory

The largest single line for most physical businesses and often close to zero for service businesses. Buying used, leasing, or starting with the equipment you already own are all legitimate ways to compress this.

Recurring monthly costs

These are the ones that keep arriving whether or not you have customers, which is what makes them dangerous when underestimated.

Typical lines include rent, insurance, software subscriptions, accounting, phone and internet, and any regular contractor payments. Software in particular tends to accumulate quietly, a subscription at a time, until it is a meaningful monthly number.

Write every recurring cost down in one place. The total is your monthly burn, and it is the number that determines how long you can operate before revenue has to arrive.

The part most people miss: runway

Runway is your monthly burn multiplied by the number of months before revenue covers it. If your recurring costs are $2,000 a month and you expect six months before the business pays for itself, you need $12,000 set aside on top of your setup costs.

This is the number that determines whether a business survives its first year, and it is the one most commonly left out of a starting budget. Our startup cost calculator adds all three categories together so you see the real total rather than the setup figure alone.

What you can genuinely start with almost nothing

Service businesses built on skills you already have compress the setup cost close to zero, because the main input is your time rather than capital. That is a large part of why they dominate the statistics.

Census data puts nonemployer businesses, those with no paid employees, at 78.4% of all US establishments in 2023, over 30 million of them, turning over nearly $1.8 trillion between them. The typical American business is one person with low overhead.

Free help with the numbers

Small Business Development Centers offer free one-to-one advising and tend to go deeper on financials than a general mentor. Working through a cost estimate with an SBDC advisor before you commit money is free and available in every state. Our free help page lists them alongside SCORE, Women's Business Centers and Veterans Business Outreach Centers.

A worked example

Say you are starting a service business. LLC formation at $125, business insurance at $60 a month, software at $90 a month, accounting at $150 a month, phone and internet at $80 a month. Your one-time cost is $125 and your monthly burn is $380.

If you expect six months before revenue covers that burn, your runway requirement is $2,280. Your genuine starting figure is $2,405, not $125. That gap between the two is where most underfunded businesses fail.

Where the money comes from

Most first businesses are self-funded, and the SBA's loan programs exist for the cases where that is not enough. The 7(a) program is the agency's primary route, issued by lenders and partly guaranteed by the SBA, which is what makes a lender say yes where they otherwise would not. Microloans go through community-based intermediaries and are often the realistic option for a newer or very small business.

Lender Match connects you to participating lenders based on what you need. It is a referral tool rather than an application, so you still apply with the lender directly.

Costs by business type

The shape of the costs is consistent, but the size varies enormously by what you are building. Four rough patterns cover most cases.

Service business run from home

The lowest-cost category. Formation fee if you register an entity, insurance, software, accounting, and phone. Equipment is frequently what you already own. Setup can be under a few hundred dollars and monthly burn under $500.

The main cost in this category is not money. It is the time before revenue arrives, which is why runway still matters even when setup is cheap.

Product business selling online

Adds inventory, which is the item that most often consumes more cash than planned. Inventory ties up money that you cannot spend on anything else until it sells, and buying too much of the wrong thing early is a common way to run out of cash while appearing to have assets.

Also adds payment processing, shipping, packaging and returns. Each is small individually and meaningful together.

Business with premises

A step change. Rent, a deposit, fit-out, utilities, and insurance requirements that come with a lease. Rent is the single most consequential fixed cost most small businesses take on, because it arrives every month regardless of trading.

Business with employees

Payroll is the largest recurring commitment available, and it comes with employer taxes, insurance obligations and administration. This is why so many businesses stay solo. Census data shows 78.4% of US establishments have no paid employees at all.

The costs people forget

Some categories consistently escape the initial budget.

Your own income. If you need to live while the business establishes itself, that requirement is part of the funding question whether or not it appears in the business budget.

Payment processing. A percentage of every transaction. On thin margins this is not trivial and should sit inside your pricing.

Software creep. Subscriptions accumulate quietly. Listing them annually rather than monthly tends to be clarifying.

Professional fees. An accountant, and occasionally a lawyer. Frequently cheaper than the errors they prevent.

Taxes. Self-employment tax in particular surprises people, because an employer would normally split those contributions with you.

How to reduce the number without undermining the business

There is a difference between cutting cost and deferring cost, and only one of them helps.

Genuine reductions: starting from home, buying used equipment, using free software tiers, doing your own bookkeeping initially, and testing demand before buying inventory.

False economies: skipping insurance you actually need, avoiding an accountant when your situation is not simple, underpricing to win early customers, and buying the cheapest version of the thing your business depends on.

The reliable test is whether the saving reduces cost or moves it somewhere less visible.

Working out your own number

The exercise takes an hour and is worth more than any general estimate.

List every one-time cost you can identify, then add 20% for the ones you have not thought of yet. List every recurring monthly cost, including your own pay. Estimate honestly how many months before revenue covers that monthly figure, then add two months.

Multiply the monthly figure by that month count, add the one-time total, and you have a defensible starting number. Our startup cost calculator does this arithmetic and shows the three parts separately.

What happens if you underestimate

Running out of cash is the most common way a viable business ends. Not a bad idea, not a lack of customers, simply reaching zero before revenue caught up.

This is also why the risk is concentrated early. BLS cohort data shows the steepest drop in the first year, from 100% of establishments to 79.6%, with the curve flattening considerably afterward. The first year is when the gap between costs and revenue is widest.

Free advisors will pressure-test a cost estimate before you commit money, and SBDCs in particular are built for exactly this conversation.