How Much Does It Cost to Start a Business? Budgeting Tips

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Tony Pham Aug 30 2025

If you are nurturing a startup idea but do not know the cost to start a business? In the article below, let's learn with NextSky about each expense in detail, how to make a financial plan, and saving tips to start a successful business and develop a sustainable brand.

How much does it cost to start a business?

Starting a business from home can cost nearly nothing, while opening a traditional storefront might require tens of thousands of dollars. Some industries even demand millions to launch. Actual costs depend heavily on the business type, scale, and location. Understanding hidden costs upfront helps you craft an effective financial strategy and boosts long-term success. Renu Therapy founder Bill Bachand shares, “I’m no financial wizard, but I can read a balance sheet and profit-and-loss statement. When every expense is clearly tracked, transparent financials guide you to smarter decisions.”

Summary of common startup costs

1. Legal and administrative costs

Legal and administrative costs are the critical first steps to establishing your business:

Business registration fees: Registering a business (e.g., LLC, corporation) costs $50–$1,180, depending on the state and legal structure. For example, forming an LLC in California requires a $70 filing fee and an $800 annual tax.
Licenses and permits: Costs vary by industry and location. General business licenses range from $50–$400 annually, while specialized permits (like liquor licenses) can cost $50–$300,000+.
Legal fees: Hiring a lawyer for contracts, trademark registration, or compliance can cost $150–$1,500 per hour, depending on expertise.
Tip: Use online legal services like LegalZoom to save on LLC formation, but consult a local attorney for complex industries like healthcare or food.

2. Office and operational costs

Not every business needs a physical space, but if you do, these costs can add up:

Rent: Office or retail space costs vary by location. In 2025, average rent ranges from $20.77 per square foot in Orlando (Class C spaces) to $90 per square foot for premium spaces in New York City.
Utilities: Expect $200–$1,000 monthly for electricity, water, and internet, depending on space size.
Office supplies and furniture: Basic setups (desks, chairs, computers) cost $500–$5,000 for a small team.
Start with coworking spaces or work from home to cut rent costs. NextSky’s Shopify themes, like Glozin or Umino, are optimized for online businesses, eliminating the need for a physical store early on.

3. Inventory costs (if applicable)

Inventory often takes a big chunk of your budget:

Initial inventory: Costs vary by industry. A small craft business may need $500–$2,000, while a retail store could require $10,000–$50,000.
Storage: Depending on size and location, warehouse or storage solutions cost $100–$2,000 monthly.
Packaging and shipping: Generic boxes cost $0.10–$2 per unit, while branded packaging can reach $25. Domestic shipping starts at $9.65 per package.
Tip: Consider dropshipping to reduce initial financial pressure. NextSky’s Shopify integrations make implementing easy, minimizing risks while ensuring smooth operations.

4. Marketing and advertising costs

Building brand awareness is non-negotiable, even for lean startups:

Branding: Logo design, business cards, and trademark registration cost $500–$5,000.
Website development: Using platforms like Shopify, hosting starts at $5/ 5/month, with premium themes like NextSky’s Agile or Umino costing $180–$350 one-time.
Advertising: Online ads (e.g., Google Ads, social media) cost $500–$5,000 monthly, depending on scale.
Use AI tools like Shopify Magic to create cost-effective content, such as product descriptions and email campaigns.

5. Equipment and technology costs

Every business needs tools to operate efficiently:

Hardware: Computers, POS systems, or specialized equipment (like food truck gear) cost $1,000–$50,000.
Software: Accounting tools like QuickBooks ($0–$70/month) or scheduling tools like Monday.com ($10–$20/user/month) are standard.
E-commerce platforms: Shopify plans start at $5/ 5/month, with advanced features up to $399/month.

6. Personnel costs

Your team is the backbone of your business, but it comes with significant costs:

Salaries: Average wages are $32.25/hour, plus $14.59/hour for benefits (2025 data).
Training: Employee training and development costs $500–$5,000 per person.
Benefits: Health insurance and retirement plans add 10–20% to payroll costs.
Tip: Start with freelancers or part-time staff instead of full-time hires. Platforms like Upwork are great for finding experts within your budget.

7. Operational costs

Beyond personnel, businesses face recurring expenses to keep running:

Insurance: General liability insurance costs $500–$1,500 annually.
Accounting: Use software or hire professionals for $0–$2,000/year.
Utilities and subscriptions: Internet, software, and other services average $200–$1,000/month.
Tip: Leverage free trials or negotiate discounts early to save during the startup phase.

8. Research and development (R&D) costs

For businesses with products or innovative ideas, R&D is essential:

Product development: Depending on complexity, prototyping and testing can cost $1,000–$50,000.
Market research: Surveys or focus groups typically cost $500–$10,000.
Tip: Use low-cost tools like Google Forms or social media polls to gauge customer needs without breaking the bank.

9. Working capital

Working capital is your safety net to keep operations smooth until you turn a profit:

Operational costs: Budget for 3–6 months of expenses, typically $5,000–$20,000 for small businesses.
Emergency fund: Reserve 10–20% of your budget for unexpected issues.
Tip: Reinvest early revenue to build working capital, as seen with Shopify brands like Mush Studios.

How to estimate startup costs

Estimating startup costs isn’t just about listing numbers but categorizing them. Understanding expense types helps you control cash flow, reduce risks, and build a solid financial foundation.

One-time vs. recurring costs: One-time costs, like equipment purchases or consulting fees, can strain short-term budgets and need careful planning. Recurring costs, like rent, utilities, insurance, or salaries, are monthly and part of fixed planning.
Essential vs. optional costs: Essential costs (taxes, salaries, debt payments, software, equipment) are non-negotiable to keep operations running. Optional costs, like enhanced benefits or office upgrades, depend on available funds.
Fixed vs. variable costs: Fixed costs (rent, base salaries) stay constant regardless of revenue. Variable costs (materials, packaging, shipping) scale with sales volume—the higher the sales, the larger these costs.

Methods to estimate startup costs

Estimating costs isn’t just about getting supplier quotes, as some expenses, like marketing, can seem limitless. Use these three standard methods for realistic figures:

Comparative analysis: Base estimates on data from similar businesses. Review industry reports, consult mentors, or ask other entrepreneurs to gauge required expenses.
Rule of thumb: Use industry benchmarks. For example, the SBA notes businesses typically spend 7.7% of annual revenue on marketing, providing a starting point for financial planning.
Phase-based estimation: Costs shift with business stages. Early on, you might spend heavily on inventory, reduce marketing costs once customers are stable, and increase spending as you scale.

How to prepare for unexpected costs

Securing the proper funding is key to startup success. Here are popular ways to fund your initial investment:

Personal savings: If you have savings from prior work, side hustles, or asset sales, this is the simplest and safest way to maintain financial control. Many online businesses start with personal savings.
Friends and family: If you’re lucky to have supportive loved ones, borrowing from them can cover first-year costs. It’s not just funds—it’s emotional encouragement for your journey.
Bank loans: Many banks offer favorable small business loans. However, loans come with responsibility, and struggles could leave you personally liable.
Merchant cash advances: Tied to revenue, options like Shopify Capital let you retain full ownership, with repayments automatically deducted as a percentage of sales.
Crowdfunding: Turn your idea into reality with community support. While you don’t repay funds, crowdfunding campaigns require thorough preparation and months of effort for success.
Venture capital: If you have a unique product or scalable model and are open to sharing equity, venture capital offers funds, expertise, networks, and growth opportunities.
Business credit cards are quick for initial expenses like equipment or supplies. Some offer cashback or rewards, but uncontrolled spending can lead to high-interest debt.

Mistakes and pitfalls in startup budgeting

Even the best plans can falter without careful budgeting. A single overlooked expense can derail cash flow and trigger unexpected costs:

Ignoring significant expenses: Machinery, equipment, or licenses aren’t small costs. Unplanned, they can weigh down your budget.
Underestimating small fees: Shipping, transaction, or SSL certificate fees seem minor, but add up significantly.
Neglecting inventory costs: Physical products mean storage, packaging, order processing, and unsold stock risks. New businesses often underestimate this burden.
Forgetting recurring bills: Monthly expenses like internet, software, rent, or salaries quietly drain budgets. Overlooking them leads to cash flow shortages.
Undervaluing personnel costs: Salaries are just the tip of the iceberg. Benefits, insurance, taxes, training, and supplies are often forgotten hidden costs.
Expecting quick revenue: Some founders anticipate an instant market response. Slow revenue without a prepared budget can destabilize your business early.
Lacking a contingency fund: Equipment failures, legal fees, or rising material costs can strike. A 10–20% budget reserve is a must-have safety net.
Not updating budgets: Businesses evolve daily, and budgets must follow. Sticking to outdated numbers undermines planning accuracy.
Over-cutting marketing costs: Brands grow with proper investment. Websites, ads, influencer partnerships, or content are investments, not burdens.
Overlooking taxes: Business taxes, payroll taxes, or accounting costs can hit unexpectedly if unprepared, creating financial strain.

Starting a business demands careful financial planning, but you can succeed on any budget with the right strategy. NextSky’s insights aim to help you cut costs and maximize growth.

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Tony Pham

Hello! I'm Tony Pham, a full-stack Shopify, Magento, and WordPress developer with over 12 years of experience in both front-end and back-end development.

Since 2016, I have been proudly working at Nextsky as the Tech Lead, where I continue to enhance my skills and contribute to exciting projects. One of my proudest works is the Agile theme, which passed Shopify's high standard and is currently available on Shopify Theme Store.

I am passionate about researching new technologies and staying updated with the latest trends in the industry. It not only makes my life more fulfilling and exciting but also allows me to bring better service to clients.