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How to Estimate Your Small Business Startup Costs

Launching a small business is an exciting venture, but Small business financial tips success depends on more than just a great idea — it requires careful planning, especially when it comes to finances. One of the first and most critical steps in setting yourself up for success is estimating your startup costs. Without a solid understanding of what it will take to get your business off the ground, you risk running out of cash before you even open your doors.

In this guide, we’ll break down exactly how to estimate your startup costs, what categories to include, how to avoid common pitfalls, and what to do once you’ve tallied your total.

What Are Startup Costs?

Startup costs are the expenses you incur before your business begins generating revenue. These costs can range from tangible items like equipment and inventory to intangible ones such as permits and marketing campaigns.

Understanding and estimating these costs accurately helps you:

  • Determine how much capital you need to raise
  • Create a realistic business plan
  • Avoid financial surprises
  • Set competitive prices that account for your overhead

 

Step 1: Identify Your Business Type and Needs

Startup costs vary significantly depending on the nature of your business. A home-based freelance design studio will have much lower startup costs than a brick-and-mortar restaurant. Start by clearly defining:

  • Your industry and niche
  • Your business model (service-based, product-based, subscription, etc.)
  • Whether you’ll need a physical location, inventory, or employees

Having a defined scope will make it easier to calculate costs tailored to your actual operations.

 

Step 2: Categorize Your Expenses

Break your potential costs into two broad categories:

One-Time Expenses
These are upfront costs you’ll pay before or during your launch.

  • Business registration fees
  • Licenses and permits
  • Equipment and tools
  • Website and branding
  • Legal and accounting services
  • Initial inventory
  • Leasehold improvements or office renovations

Recurring Expenses
These are ongoing costs you’ll pay monthly, quarterly, or annually.

  • Rent or mortgage
  • Utilities (electricity, internet, water)
  • Payroll and benefits
  • Insurance
  • Marketing and advertising
  • Software subscriptions
  • Loan payments
  • Maintenance and supplies

 

Step 3: List Every Possible Expense

Here’s a comprehensive list of startup cost items to help you brainstorm what may apply to your business:

Administrative & Legal

  • Business formation fees (LLC, S Corp, etc.)
  • Trademark registration
  • Legal consultation
  • Accountant or CPA services

Licensing & Permits

  • City or state business licenses
  • Health and safety permits (especially for food businesses)
  • Home occupation permit (for home-based businesses)

Office or Retail Space

  • First month’s rent and security deposit
  • Furniture and fixtures
  • Renovations or build-out
  • Signage

Technology & Equipment

  • Computers, tablets, or POS systems
  • Phones and printers
  • Tools or machinery
  • Software (accounting, marketing, CRM)

Marketing

  • Logo design and branding
  • Website development
  • Business cards and brochures
  • Initial ad campaigns (online or print)

Inventory (for product-based businesses)

  • Raw materials or goods
  • Packaging supplies
  • Shipping materials

Personnel

  • Hiring costs (ads, background checks)
  • First month of payroll
  • Training expenses
  • Uniforms or work gear

Professional Services

  • Business consultant or coach
  • IT setup or tech support
  • Photography for marketing or menus

 

Step 4: Assign Estimated Costs

Once you’ve listed applicable expenses, research and assign a dollar amount to each item. Some tips:

  • Call local service providers for quotes
  • Use online cost calculators
  • Look up average costs for your industry
  • Don’t forget to include taxes and fees

If you’re not 100% sure of a number, estimate on the higher end — it’s better to over-budget than under-budget.

 

Step 5: Create a Startup Budget Spreadsheet

Organize your cost estimates into a spreadsheet. Include:

  • Expense category
  • Item description
  • One-time or recurring
  • Estimated cost
  • Notes (source of estimate or rationale)

This will serve as both a planning tool and a financial reference point as you secure funding.

 

Step 6: Add a Buffer for Unexpected Costs

No matter how thorough your estimate, unexpected costs will arise. Add a 10%–20% buffer to your total startup budget to prepare for the unexpected — like delayed permits, higher-than-expected contractor quotes, or last-minute purchases.

For example, if your estimated costs total $50,000, you should plan for $55,000–$60,000 to stay financially safe.

 

Step 7: Determine How You’ll Fund Your Startup

Once you know your total startup costs, the next step is funding. Common funding options include:

  • Self-funding (bootstrapping): Using personal savings or assets
  • Friends and family: Borrowing from trusted sources
  • Small business loans: From banks or the SBA
  • Business grants: Especially for women, veterans, and minority-owned businesses
  • Angel investors or venture capital: If you’re scaling fast or in a high-growth sector
  • Crowdfunding: Platforms like Kickstarter or GoFundMe

Be sure to align your funding strategy with your startup timeline and business model.

 

Common Mistakes to Avoid

Here are a few pitfalls first-time entrepreneurs often fall into:

  • Underestimating costs: Leads to cash flow problems quickly
  • Not accounting for personal expenses: Your personal budget might also need adjusting
  • Skipping over small items: Like software fees or transaction costs — they add up!
  • Not planning for slow revenue at launch: Build in 3–6 months of operating capital to sustain the business until it’s profitable

 

Bringing It All Together: Plan, Budget, and Adapt

Estimating startup costs isn’t just about the launch—it sets the tone for how you manage your business. The more accurately you forecast your expenses, the better your chances of staying afloat and scaling strategically.

Keep in mind that your initial estimate is a living document. Revisit and revise it as your business evolves. Stay informed, plan carefully, and you’ll be better equipped to make smart, financially sound decisions from day one.

The National Business Association has authored and curated resources on various topics and in multiple formats that will help you achieve your goals. Whether you are considering starting your first business or if you are a seasoned entrepreneur, there is something in this Resource section of the NBA website that will be helpful. We hope you find this article useful.

Providing relevant resources in an easy-to-navigate format is one of the many ways that the NBA accomplishes its mission of helping small businesses succeed. It fulfills our vision of being an indispensable resource for the self-employed, small business owners, and entrepreneurs. If you are interested in a deeper relationship with the NBA, sign up for our free email newsletter or learn about becoming a member by clicking on the “Join the NBA” link above.