What It Really Costs to Start a Business
Last reviewed October 18, 2026. General information, not financial, legal or tax advice.
The honest answer to “how much does it cost to start a business?” is: it depends on the business, and the number you need is almost always bigger than the price of the equipment. The gap is usually made up of recurring costs, taxes, and the months before revenue covers your bills.
This guide gives you a way to build your own estimate instead of trusting a single headline number.
The cost categories
Sort every expense into one of these buckets. The SBA groups startup costs in a similar way and separates one-time expenses from ongoing monthly ones.
One-time setup
- Business registration and any local business license
- Professional help, such as an attorney or accountant for setup
- Logo, website setup, initial printed materials
Equipment
Tools, vehicles, computers, or machinery you need to deliver the work. Check whether you already own usable equipment before buying anything.
Initial inventory and supplies
Stock you sell or consume in delivering the service. Buy only what the first few weeks require until you know what moves.
Deposits
- Lease security deposit
- Utility deposits
- First payment on insurance policies
Working capital
Cash to keep operating while revenue ramps up and customers pay. For a deeper look, see The Difference Between a Down Payment and Working Capital.
Recurring costs
Rent, phone, internet, software subscriptions, fuel, insurance premiums, advertising, and payroll if you hire. The SBA suggests counting at least one year of monthly expenses, and says five years is ideal.
Debt service
If you borrow to start, monthly loan payments are a fixed cost from day one, regardless of sales.
Optional costs
Nice-to-have items: upgraded equipment, branded vehicles, paid ads before you have proven demand. Label them as optional and push them later if cash is tight.
Hidden costs people miss
Self-employment tax
When you work for yourself, there is no employer withholding Social Security and Medicare. The IRS sets the self-employment tax rate at 15.3% (12.4% Social Security and 2.9% Medicare), and you generally must pay it if your net earnings from self-employment are $400 or more. This is on top of income tax. The IRS lets you deduct the employer-equivalent portion of self-employment tax when calculating adjusted gross income.
Estimated tax payments
Because no one withholds tax from your business income, the IRS generally expects you to pay estimated taxes during the year if you expect to owe above a threshold. Missing them can bring penalties. The safest habit is to move a set percentage of every payment into a separate tax account. A tax professional can help you choose the right percentage for your situation.
Insurance
The SBA lists general liability, professional liability, product liability, commercial property, home-based business coverage, and business owner’s policies as common options. A standard homeowner’s or renter’s policy may not cover business activity. If you hire employees, workers’ compensation and unemployment insurance are generally required, and rules vary by state.
Payment processing fees
Card processors typically charge a percentage of each sale, often plus a small fixed fee per transaction. Check your processor’s published rates. As a hypothetical example: at 3% plus $0.30, a $100 sale nets $96.70, and $5,000 of monthly sales spread over 50 transactions costs $165 in fees.
Licenses and permits
Requirements vary by city, county, state and industry. Some trades need a professional license, and some activities need permits or inspections. Check with your city or county and your state’s business portal before you start, not after.
Your own time and living costs
If you leave a job, your personal bills keep coming. The business has to cover them, or your savings do.
How to build a runway estimate
Runway is how many months you can keep going before cash runs out. Build it in five steps.
- Add up one-time startup costs. Use real quotes wherever possible.
- List monthly fixed costs. Things you pay no matter how many customers you have.
- Estimate variable costs as a percentage of sales. Supplies, fuel, payment processing.
- Project revenue conservatively, month by month. Assume a slow ramp. Base it on evidence from testing, not hope.
- Subtract a tax set-aside and any owner draw, then track the cumulative cash balance. The lowest point is the minimum you need, before any cushion.
Worked example (hypothetical arithmetic)
All numbers here are invented to illustrate the method. They are not estimates for any real business.
Assume a part-time residential cleaning business:
- One-time startup costs: $1,900 (equipment $700, supplies $250, registration and local license $150, first insurance payment $350, marketing $300, software and setup $150)
- Fixed monthly costs: $450
- Variable costs: 12% of revenue
- Tax set-aside: 25% of monthly profit (an illustrative figure; set yours with a tax pro)
- Owner draw: $1,500 per month
| Month | Revenue | Variable (12%) | Profit after $450 fixed | Tax set-aside | Cash after $1,500 draw | Cumulative cash |
|---|---|---|---|---|---|---|
| Start | -$1,900 | |||||
| 1 | $800 | $96 | $254 | $64 | -$1,310 | -$3,210 |
| 2 | $1,600 | $192 | $958 | $240 | -$782 | -$3,992 |
| 3 | $2,400 | $288 | $1,662 | $416 | -$254 | -$4,246 |
| 4 | $3,200 | $384 | $2,366 | $592 | $274 | -$3,972 |
| 5 | $4,000 | $480 | $3,070 | $768 | $802 | -$3,170 |
| 6 | $4,500 | $540 | $3,510 | $878 | $1,132 | -$2,038 |
What this shows:
- The equipment list totals $1,900, but the cash low point is -$4,246 in month 3. That is the real amount needed before any cushion.
- Even after the business turns cash-positive in month 4, it takes many more months to earn back the early losses.
- If the owner did not need a $1,500 draw (for example, by keeping a job), the business would be cash-positive from month 1 and recover its startup costs in month 3.
- If revenue grows more slowly than projected, the low point gets deeper and arrives later.
A reasonable plan would hold the low-point amount plus a reserve, such as one to three months of fixed costs and draw.
You can run your own version of this in the startup cost calculator.
Ways to lower the number
- Start with what you own. Use your existing phone, computer and vehicle where it is safe and legal.
- Rent or borrow equipment until demand is proven.
- Collect deposits before buying job-specific materials.
- Start part-time so your job covers living costs during the ramp.
- Delay optional costs until revenue supports them.
Limitations
Costs vary widely by location, industry and season. Tax rules, insurance pricing and license fees change, so confirm current figures with official sources and real quotes. This guide is general education, not tax, legal or financial advice.
Next step
See which businesses fit the cash you actually have. Try the free business matcher, or browse ideas under $2,500.