How much will this cost?
It’s the most natural, foundational question to ask when you’re considering whether or not to start your very own business.
And, while every business is different, there are some general answers to this question that can help you plan your finances and understand how much money you may need to borrow.
The US Small Business Administration estimates that a microbusiness—defined as having nine or fewer employees, but usually a sole proprietorship—costs on average $3,000 to launch. By comparison, home-based franchise-type businesses cost between $2,000 and $5,000.
That is enough to get a small business started. But if this enterprise is to be your main source of income and not a side hustle you will likely need more cash on hand.
Along with startup cash, it is a good idea to have enough cash on hand to cover six months of your fixed costs—i.e., any regular or foreseeable costs for which you can plan. This money will provide a buffer so you can get your business up and running efficiently without constantly sourcing more capital.
When you are calculating how much you will need for your first six months, be sure to overestimate rather than underestimate costs: You want a realistic idea of your monthly expenses to prevent yourself from running out of cash before your business is fully functional. Remember, it is better to be pleasantly surprised by spending less than anticipated that to find yourself scrambling to cover a shortfall.
One effective way to calculate your startup costs is to use the SBA startup calculator, which categorizes of all your potential expenses, explains how to run a break-even analysis, and even offers advice on how to use the costs you calculate to get startup funding.
To get an idea of your base startup costs, the SBA has come up with the following list of expenses nearly every business will have:
- Office space
- Equipment and supplies