Business Startup Costs: What to Budget Before You Open

Split costs into one-time and ongoing

One-time costs happen before opening. Ongoing costs repeat monthly until revenue covers them. Both need cash.

Many first-time owners budget only for one-time purchases and forget that rent, insurance, payroll and software start on day one while sales ramp slowly.

• One-time: formation filing, licenses, equipment, build-out, signage, website, initial inventory, deposits.
• Ongoing: rent, utilities, insurance, payroll, software, marketing, loan payments, supplies.

Create two lists in a spreadsheet and total each. Then add a third line, runway, equal to several months of ongoing costs. Without it, a normal slow start can end the business.

Legal, licensing and setup costs

Expect state filing fees, local business licenses, permits, insurance and professional help. Amounts vary by state, city and industry, so check your own.

Typical items:

• Entity formation filing with your state, and registered agent if used.
• Local business license and industry permits or professional licenses.
• Employer ID number, which is free from the IRS. See the business tax ID number guide.
• Business insurance: general liability, professional liability, workers' compensation where required, commercial auto.
• Attorney or accountant time for entity choice and contracts.

Fees differ widely, so look up your state's filing office and your city or county licensing office for current numbers. Read business structures before you file.

Space, equipment and inventory

Price the build-out, equipment and opening inventory from actual quotes, and decide what to buy new, used or lease.

These are usually the largest line items. Get at least two written quotes for each major purchase. Include delivery, installation, permits, training and warranties.

Ask for leases and rentals. Leasing can cut upfront cash but adds a monthly payment. Used equipment may save money but can bring repair risk. For comparison see equipment leasing.

For inventory, estimate your first 60 to 90 days of sales and order accordingly. Overbuying ties up cash; underbuying loses sales. Add security deposits for rent and utilities. Restaurants, salons, shops and trades differ a lot: see how others have priced theirs in guides like the cost to open a salon.

Technology, branding and marketing

Budget for a website, point-of-sale or booking software, branding basics and first-year marketing to bring in initial customers.

New businesses must be found. Include a domain, hosting or builder subscription, email, a simple logo and color system, signage, business cards, photography, a Google Business Profile and a modest launch budget for ads or local promotion.

Software items like accounting, payroll, scheduling and payments have monthly fees that add up. List each one.

Plan marketing as a monthly line, not a one-time spend. Our small business marketing budget guide and website guide help you size it.

Working capital and runway

Set aside enough cash to pay all ongoing costs, including your own living expenses, until the business reaches break-even. Three to six months is a common planning range.

Most startups lose money at first. Your runway is how long you can operate before the money runs out.

Illustrative example: monthly operating costs of $12,000, expected revenue of $4,000 in month one rising by $2,000 a month. You would lose $8,000, then $6,000, $4,000, $2,000 and break even in month five. Total cash burned is $20,000 before any one-time costs. Add a buffer for delays and you can see why the runway number matters.

Do not forget owner pay or household expenses. Use the break-even formula to find the sales you need.

Build the estimate step by step

Use a spreadsheet with line items, quotes, source and date, then add a 10 to 20 percent contingency for items you will miss.

1. List every item under categories: legal, space, equipment, inventory, technology, marketing, staffing, working capital.
2. Record a real quote or a documented estimate for each.
3. Separate one-time costs from monthly ones.
4. Total both, then add contingency.
5. Compare against your savings and other sources.

Contingency is not padding. Permit delays, price changes and unexpected repairs are common. Revisit the estimate as quotes arrive. See our financial steps for starting a business for the sequence.

Funding sources and an honest note about startups

New businesses often use savings, family, grants, microloans or SBA programs. Established businesses with revenue have more options.

Common sources include personal savings, partners, friends and family, microloans, SBA programs and equipment sellers who offer financing. Read how to get startup funding and SBA loans for startups for details.

To be direct: ROI Funder does not place startup loans for businesses under six months. We consider businesses with 6+ months in operation, $20,000+ in monthly revenue and 500+ FICO. If you are past that point and your costs are expansion costs, such as a second location or new equipment, see equipment financing and working capital.