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The Real Cost of Building a Startup

The Real Cost of Building a Startup

December 16, 2020
by Yuliia Illiv

Each of us has heard at least one super inspiring story about an entrepreneur whose startup idea hit the market with tremendous success. Usually, the story tells us about a creative and determined founder who started in a garage and due to their hard work and innovative idea, received millions of bucks in investing, and turned their name into a brand. And hope overwhelms our hearts — we can achieve the same.

But in such stories frequently one thing is left out — we have no idea of how that entrepreneur covered all the costs to turn their dream into reality. And that’s a common reason why many inspired but inexperienced founders don’t seriously consider the cost of starting the business. So, how much does it cost to start a business?

First of all, it’s important to mention that cost largely depends on the industry, scale of the company, and field of business. Developing a mobile application doesn’t cost the same as sending rockets to space. Though there still are some common startup costs for a business that every founder faces.

One-time business startup costs

Permits and licenses

When starting a business, compliance is key. Check what permits are needed for your future company and how much money is required to cover them. The most important licenses that you might need are a business license, a fire department permit, air and water pollution control permit (if you burn any materials or discharge waste into waterways or sewers), health department permits (in case you plan to sell food). If your business will be located in the US, also check if you need any state licenses, federal licenses, and sales tax licenses.

Technological expenses

Technological expenses comprise such things as website development and design, information systems, and software (including accounting and payroll software). Most of the businesses decide to outsource the technological needs of a business as it allows them to save time and money and concentrate only on core business.

Equipment and supplies

Depending on the field you are planning to launch a business in, different forms of equipment and supplies are required. Usually, this sum constitutes a large fraction of the average cost to start a business. But it can also vary depending on the field (if you need just several computers or manufacturing equipment), and choosing between buying and leasing models.

Ongoing expenses

Employee expenses

Probably the most cost-consuming factor is employee expenses that often go beyond the salary. Often business owners also cover employment taxes, insurance costs, annual benefits (usually 20% of salary), training and courses expenses, corporate parties, and so on. Of course, some of the benefits can be omitted but make sure your company is competitive in comparison with other companies in the matter of attracting professional employees and guaranteeing a high level of their retention.

Advertising and promotion

Nowadays marketing takes a special place in promoting any business. It’s hard to imagine how to attract people to your business without advertising it. And it’s not just about placing some ads. Marketing has become a science that includes studying customers’ behavior, target advertising, social media marketing, building a company’s brand, and many other things that are vital for a successful company.

Rent

Rental payment largely depends on the country, part of the city it is situated in, and its size. If you plan to launch a manufacturer, there is no other way but to rent a place. Though in case the only space needed for your startup is a small office, you might think about working remotely for some time. It will save you a big amount of business startup costs and give access to a large talent pool.

Summing up, it doesn’t matter how embroiled in the excitement about starting a company you are, there is the most important question you should ask yourself as soon as possible — how much money do you need to start a business? Dreaming about success is cool but being realistic not to run into debts is much cooler. What is your idea? What business startup costs are the most important for launching a venture?


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