Get an in-depth understanding of how much money you need to start a business, considering various costs. Learn how to manage expenses and your options.
How much money do you need to start a business? It could be anywhere from a few hundred to a few million dollars, depending on what type and scale of start-up you’re planning.
To open a McDonald’s franchise, you’ll need between $1.3 and $2.4 million, including $500,000+ in liquid assets.1 If you’re starting a home-based or micro-business with no inventory, staffing, or equipment needs, you can squeak by without significant cash in hand.2
While there isn’t a single cookie-cutter answer to how tall your pile of money needs to be to fund a new business, we’ve rounded up the typical cost categories with some estimates and calculations as a starting point for a potential small business owner.
Once you’ve finalized a business plan and decided on a business structure, you’re ready to consider financing and initial costs.
If you opt for a limited liability company or corporate structure, you’ll pay $50 to $725 in fees to file articles of organization or incorporation at the state level (under $300 in most states).2
Depending on your business type, you may also need to cover fees for federal or state licensing or permits such as sales tax or industry-specific licensing.
Unless you opt for sole proprietorship, plan on consulting legal, tax, and finance professionals, and purchasing business insurance, before finalizing your business structure and articles.
Per year, business insurance averages $1,200 and can include:2
Equipment is often the most expensive category for start-up costs, typically costing $11,000 to $125,000.3 Research similar businesses to identify what kind of equipment and infrastructure—the systems and surroundings necessary to run your equipment—will be needed.
As an ongoing expense, plan to spend no more than 10% of your total budget on marketing costs.2 Depending on the type, industry, and scale of your business, your launch marketing could be either lower or higher.
A small business owner may need to invest in initial marketing costs such as:
Small business start-ups can keep costs low by sticking to social media and small-dollar digital advertising, plus about $40 per month for a basic website.2
As you grow your customer base and become a successful business, you may want to consider:
Don’t discount traditional advertising, particularly if you’re after a local customer base. This can include:
You’ll typically want to cover six months of operating expenses in your start-up fund, so tally up all the fixed costs and variable expenses you can anticipate to establish a monthly figure.
Monthly commercial space rental is between $100 to $1,000 per employee.2 The cost will depend on location, activity/usage, type of space, and amenities and desirability.
For utilities, expect to pay about $2.10 per square foot for commercial buildings or office space.2
If you’ll be hiring employees, you’ll need a larger start-up fund. On average, employees cost:
The Small Business Administration recommends multiplying salaries by 1.25 to 1.4 times the rate of pay to account for taxes, benefits, and salary.
For many Americans, equity is the most valuable asset in their portfolio, but they don’t realize home equity can be used to build wealth. It can be leveraged—to fund your dreams, such as a new business, education, or cover critical needs—without taking on a small business loan, new debt, or moving out and finding a new home.
Wondering how to raise money for a business without a loan? A residential sale-leaseback allows you to convert all of your equity to cash without taking on debt or leaving the home you love. With Truehold's sale-leaseback, you sell to us, a trusted residential real estate and services company, and sign a lease at closing that enables you to continue living at home as a renter. This way, you can fund your new business, debt-free.
For many homeowners—including small business owners—the sale-leaseback arrangement lowers their monthly housing total cost. No more homeowner’s insurance or property tax bills, and Truehold handles the expense and headaches of major repairs and maintenance. Not to mention, you skip the hassle of a traditional home sale.
Ready to learn more? Give us a call at (314) 353-9757 and one of our advisors will reach out to review the process, answer your questions, and see if Truehold's sale-leaseback can help you reach your financial goals.
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