How Much Money Does It Really Take to Start a Business?

How Much Money Does It Really Take to Start a Business?

by Marcia Layton Turner, January 2020

Ask small-business owners how much it really takes to start a business, and you'll hear a wide range of answers. In his book, The $100 Startup, Chris Guillebeau suggests that it can be done for as little as $100, whereas Michael E. Gerber, author of Beyond the E-Myth, asserts that the question "is like asking, 'How high is up?'"

How Much Money Does It Really Take to Start Business

Although there may not be consensus on a magic startup figure, several entrepreneurs offered advice for figuring out how much you'll need. Almost unanimously, they indicated that it's probably more than you think.

So, where do you start? Try one or more of these approaches.

Add Up the Basics

You need to start somewhere, so begin by making a list of the essential equipment, materials, workspace, and advisors you'll need—your must-haves, not your nice-to-haves. The basics typically include:

  • Technology to manage the business, such as a computer, software, phone, printer and internet service
  • Your inventory (what you're selling), if you're selling products, including your raw materials, equipment and storage space
  • Advisory fees, such as for legal counsel to form your company and file any necessary permits and licenses, and an accountant to do your taxes
  • Marketing, including anything to announce your new business and attract customers
  • Office supplies, such as a filing cabinet, paper, toner and anything else to keep you functioning
  • Workspace, if you can't run your business from your home
  • Labor costs, including what you're paying yourself and anyone else to support you

Babson College analyzed what entrepreneurs typically invested to launch and reported that the median amount was $13,000 as of 2015, with entrepreneurs putting up 72% of that, or $9,360. The rest was provided by outside sources, from banks to family members.

Other studies report numbers all over the map, from $3,000 to more than $50,000, depending on your industry. So every business is different.

Start With What You Have

Diane Schuirman-Hagedorn, principal at B2B Words You Need spent about $600 on the basics she needed to operate her company, namely a business license, software, and a new website. She had everything else, she says, including an "existing laptop, home office, phone, headset, etc." Those items made it possible to be operational with little spent, but were not necessarily enough to succeed. So she invested about $10,000 in "courses and coaching" designed to help her effectively manage her business and generate revenue.

Double It

"Double what you think your startup costs will be and cut your projected revenue in half for year one," advises Lenny Pappano, president, and co-founder of Fantasy Football Draft Sharks Inc. He explains that, since you don't know what you don't know at the outset, you'll inevitably pay a "tax" for that ignorance. So set aside more than you think you'll need and "ask a lot of questions in advance so that 'tax' isn't too high."

Set Conservative Sales Targets

Many businesses are forced to shut down after only a few years because their sales forecasts were too ambitious. Their startup expense calculations may have been on target, but they expected sales to come in faster than was realistic. To prevent this, look as closely at your revenue projections as at your startup estimates.

Anticipate Surprises

Expenses that some entrepreneurs forget to take into account include permits, taxes, and insurance. Don't forget to include them in your tally. Trying to scrimp and not pay them can put you out of business quickly if you're caught.

Attend Industry Conferences

Jennifer Jaeger Newman, CEO and co-founder of Young Lion Brewing Company, advises entrepreneurs to "go to industry conferences before you finish your business plan." Newman and her team did so while finalizing plans for the brewery and found the information they learned "priceless." Colleagues and fellow brewers helped them refine their planned budget, tripling it, she says, after learning that their numbers were too conservative.

"Everything cost more than I expected," Newman adds. But learning that they needed to up their numbers at the outset prevented the company from having to pursue additional financing later, which breweries often need to do.

So what does it really cost to start a business? It can cost as little as a few hundred dollars if you're already prepared technology-wise to run a service business, or $1 million, or more if your goal is to buy an established franchise. But the median amount is less than $15,000.