How to estimate your startup costs
List your one-time and monthly startup costs, price each one and add a cushion. With a checklist of common costs, a worked example and the tax rules.
There’s no single answer to what a business costs to start. A home bakery and a restaurant are worlds apart. What you can do is list every cost, put a price on each one, and see the total before you spend. Here’s how, using the categories the U.S. Small Business Administration lists.
Split costs into one-time and monthly
One-time costs are what it takes to open: equipment, deposits, your first stock, licenses, a website. Monthly costs keep you running: rent, pay, utilities, software, marketing.
Count both. The SBA suggests counting at least one year of monthly costs, and five is ideal. Sales often take time to cover everything, so that year is the runway you’ll need.
Checklist of common startup costs
| Cost | Usually | Examples |
|---|---|---|
| Office or work space | Monthly, plus a deposit | Rent, a shared kitchen, a market booth |
| Equipment and supplies | Mostly one-time | Tools, a computer, furniture |
| Phone and internet | Monthly | Phone plan, internet, software |
| Utilities | Monthly | Power, water, gas |
| Licenses and permits | One-time, some renew | Business license, health permit |
| Insurance | Monthly or yearly | General liability, property |
| Lawyer and accountant | At setup, then as needed | Forming an LLC, tax prep |
| Inventory | First order, then ongoing | Stock, ingredients, materials |
| Employee pay | Monthly | Wages and payroll taxes |
| Advertising and marketing | Both | Ads, signs, a launch event |
| Market research | Usually one-time | Surveys, samples, test sales |
| Printed materials | Mostly one-time | Business cards, menus, flyers |
| Website | Build once, then monthly | Domain, hosting, store software |
Put a price on each line
For anything you’re unsure of, the SBA suggests looking online and asking mentors, vendors and service providers. Get real quotes for the big items, like equipment or a lease. For the rest, a careful estimate is fine for now.
Then add a cushion for what you can’t predict. In its break-even guidance, the SBA suggests adding about 10% for miscellaneous expenses.
Example: a home bakery
These are made-up numbers to show the math, not price quotes.
| One-time costs | Cost |
|---|---|
| Mixer, pans and cooling racks | $1,200 |
| Licenses, permits and a food safety course | $300 |
| Logo, website and domain | $400 |
| First ingredients and packaging | $350 |
| Total to open | $2,250 |
| Monthly costs | Per month |
|---|---|
| Ingredients and packaging | $600 |
| Insurance | $50 |
| Marketing | $150 |
| Phone, web hosting and software | $60 |
| Total per month | $860 |
| First year | Cost |
|---|---|
| To open | $2,250 |
| 12 months of monthly costs ($860 × 12) | $10,320 |
| 10% cushion | $1,257 |
| What to plan for | $13,827 |
So this baker should plan on about $13,800 to open and keep going for a year, before counting any sales. Every sale brings that down, which is where a break-even point helps: it tells you how many sales cover the monthly costs.
Startup costs and taxes
In U.S. taxes, the costs you pay before your business actually starts operating are called startup costs. The IRS lets you choose to deduct up to $5,000 of them in your first year. That amount shrinks once startup costs pass $50,000, and the rest is deducted over time. A tax professional can tell you how this works for you.
Sources
- U.S. Small Business Administration, “Calculate your startup costs”: www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs
- U.S. Small Business Administration, “Break-even point”: www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs/break-even-point
- IRS, Publication 583, “Starting a Business and Keeping Records”: www.irs.gov/publications/p583
General information, not legal, tax or financial advice. Rules differ by state, county, city and industry, so check with your local officials or a professional before you act.