Startup Costs

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 2,680 reviews

Jump to Section

Need help with an Investment Contract?

Post Project Now

Startup costs are necessary for launching a new business, and it’s essential to plan and account for them carefully since running out of money is the second biggest reason startups fail. However, entrepreneurs can prevent this from happening by creating a crystal clear picture of exactly how much money their company needs to survive and thrive.

In this article, we help you understand how startup costs work, what to expect and how to calculate them so that your new venture starts on the right foot.

What are Startup Costs?

Startup costs are the anticipated or actual expenses entrepreneurs need to start a business. Calculating business startup costs is vital for accounting, business planning , and tracking. A startup’s costs will vary according to the business entity, industry, location, and size.

For example, local retailers with a physical location have much different startup cost needs than those operating solely online. However, most businesses have similar startup costs, including pre-opening and post-opening expenses.

Example of Startup Costs

Seeing a real-world example can help us understand how more complicated or abstract concepts work. Here is an example of startup costs to better understand how they work:

  • Sean has an extensive collection of fine crystals that he wants to sell online
  • He acquired these crystals by purchasing unique stones over several years and valued at $90,000
  • Sean already has plenty of inventory, but for how long and how will he sell them?
  • He also knows that he needs to execute his marketing plan, which includes a website with terms and conditions and a privacy policy
  • Based on projections, Sean believes he can sell $9,000 in crystals every month with $3,000 in startup costs
  • However, he also knows he’ll run out of crystals within ten months of launching the site
  • Sean must also plan for sourcing new products, including shipping costs and travel, but he doesn’t want to spend more than 33 percent of revenue on promotion
  • He is creating his funding objectives for the next three years
  • Sean needs around $3,000 per month or $108,000 in three years for startup costs

How Much Do Startups Usually Cost?

The cost for a startup drastically differs from company to company, and a microbusiness or home-based franchise can start around $2,000. However, the average cost of starting a small business, big or small, is about $31,000 .

Avoid underestimating your expenses, and always keep the changes your business may face at the top of your mind. Overlooking startup costs is easy when focused on the bigger picture. Being a successful entrepreneur requires you to play both positions for the best possible outcome.

Meet some lawyers on our platform

Anand A.

10 projects on CC
View Profile

Tabetha H.

11 projects on CC
View Profile

Max M.

102 projects on CC
View Profile

Sunnita B.

15 projects on CC
View Profile

How to Calculate Startup Costs

Many entrepreneurs have a closely held belief that startup costs are all about operating expenses. While these costs are vital, you need to consider them from a big picture perspective, too. Building a plan filled with milestones will also keep you on track for the next stage.

Here is a five-step process for calculating your startup’s costs:

Step 1. Set Your Milestones and Objectives

Beginning with the end in mind is an essential step for calculating startup costs. Look at where your company is currently at, and then think about where you’d like for it to be in the next three to five years.

Set financial objectives with milestones along the way that alert you to positive and negative progress so that you can make adjustments as needed. Your business plan should be a treasure trove of insight for this step.

Step 2. Create a Financial Roadmap

After reviewing your objectives, your next step is to create a financial roadmap. Try to anticipate how your business will change as you achieve each milestone set.

While your business’ startup costs may look different, here are a few examples of costs that you may incur:

  • Business structure fees
  • Consultants
  • Equipment
  • Furniture
  • Insurance
  • Inventory
  • Marketing
  • Payroll
  • Rent/mortgage
  • Shipping
  • Supplies
  • Taxes
  • Travel
  • Utilities
  • Website

Account for these items, line by line and phase by phase. As you achieve milestones, such as moving from the pre-launch to the post-launch stage, some of these costs may change over time. Consider how you can partner with collaborators to enhance your results or reduce costs.

Step 3. Start Looking at Funding

Now that you know exactly how much money you need, it’s time to determine your funding approach. Can you bootstrap your efforts, or do you need outside help? The best way to answer this question is by calculating your startup’s burn rate , which is the amount of capital your company will need each month.

There are several ways to calculate your burn rate, such as using pro forma template data. However, this article assumes that you’re a brand new startup without any funding whatsoever. So, what you’ll do in this situation is take your anticipated expenses for each year and divide it by 12 to get annual projections.

For example, let’s say you anticipate spending $100,000 in the first year and $50,000 for the second year, then your burn rates are roughly $8,333 and $4,167, respectively. These numbers will tell you if you need to seek additional funding from outside investors, such as venture capitalists, angel investors, and banks.

Step 4. Set Funding Goals

Depending upon your results from the preceding steps, there are several ways you can approach funding. From convertible debt to SAFE notes to family and friends, set and structure your funding goals so that they’re sensible for your situation.

Your burn rate and total expenses are merely a baseline that establishes how much money you will need. Think about what you’ll need for a cushion, but don’t go overboard since too much funding can be a bad thing at the wrong time.

Step 5. Use Funding to Balance Milestones

When you know how much money you need to hit your primary objectives, it’s time to start thinking about what you’ll need to hit your milestones in between. You’ll need to consistently review these two points so that you hit your funding and business goals as expected.

You can also check out this article to learn more about calculating startups costs.

How Do Startup Costs Impact Taxes?

The Internal Revenue Service (IRS) allows startups to deduct some or all of their startup costs on income tax returns for the year they launched their business. However, this amount also depends on the amount spent and amortization. If you spend less than $50,000, then you can deduct $5,000 from your taxes immediately.

However, if you spend over $50,000, the deduction decreases by $1 for every dollar over $50,000 spent. You can also amortize assets by writing them off over time. So, if you purchase a $5,000 server and amortize it over five years, then you can write off $1,000 for each year in service.

For more information about startup costs and taxes, this web page may be helpful.

You cannot deduct startup costs from taxes, including research, development, taxes, depreciation, and asset transfers, and these costs don’t qualify for amortization or deduction.

If you have questions about how startup costs impact your business, speak with a lawyer for a startup in your state. They can help you develop your projections and install the necessary legal documents to protect your new business.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

View Christopher
Member Since:
August 25, 2020

Christopher R.

Free Consultation
Get Free Proposal
Boston, MA
8 Yrs Experience
Licensed in MA, NH
Suffolk University Law School

Corporate and transactional attorney in sixth year of practice. Focus areas include general corporate counsel, labor and employment law, business partnership matters, securities matters related to privately-held companies, and regulatory compliance in securities and finance matters.

View Forest
Member Since:
July 14, 2020

Forest H.

Free Consultation
Get Free Proposal
Nashville, TN
24 Yrs Experience
Licensed in FL, TN, TX
Washington and Lee University

Forest is a general practice lawyer. He provides legal advice regarding small business law, contracts, estates and trusts, administrative law, corporate governance and compliance. Forest practiced complex commercial litigation in Florida for eight years, representing clients such as Host Marriott, Kellogg School of Business, and Toyota. Since moving to Nashville in 2005, he has provided legal advice to clients forming new businesses, planning for the future, and seeking funding through the use of equity and/or debt in their businesses. This advice has included the selection of business type, assistance in drafting and editing their business plans and offering material, reviewing proposed term sheets, and conducting due diligence. Forest is a member of the Florida, Tennessee, and Texas Bars; in addition. Forest has held a Series 7, General Securities Representative Exam, Series 24, General Securities Principal, and Series 63, Uniform Securities Agent State Law.

View Anjali
Member Since:
July 15, 2020

Anjali S.

Free Consultation
Get Free Proposal
Orlando, FL
11 Yrs Experience
Licensed in CA, FL, NY
NYU School of Law

CA, NY, and FL licensed attorney with nearly a decade of experience in intellectual property, data privacy, commercial contracts, and employment. I also have both the CIPP/US and CIPP/E privacy credentials. Basically, everything your business needs!

View David
Member Since:
July 15, 2020

David C.

Law Firm Principal
Free Consultation
Get Free Proposal
Miami, FL
41 Yrs Experience
Licensed in FL, NJ
University of Florida, Levin College of Law

David H. Charlip, the principal of Charlip Law Group, LC, is one of only 101 Board Certified Civil Trial Lawyers in Miami-Dade, with over 40 years of litigation experience. Mr. Charlip is also one of only 136 Florida Civil Law Notaries. He is also a Florida Supreme Court Certified Circuit Civil Mediator and a Florida Supreme Court Approved Arbitrator. He has managed and litigated cases across the country. Mr. Charlip has advised businesses, drafted business formation and purchase and sale documents and litigated business disputes for over 40 years and is very familiar with all aspects of contractual relations.

View Christopher
Member Since:
December 7, 2021

Christopher R.

Managing Attorney
Free Consultation
Get Free Proposal
6 Yrs Experience
Licensed in FL, OH
Capital University Law School

Trusted business and intellectual property attorney for small to midsize businesses. Helping businesses start, grow, scale and protect.

View Lourdes
Member Since:
July 15, 2020

Lourdes H.

Free Consultation
Get Free Proposal
Miami, FL
18 Yrs Experience
Licensed in FL, NJ
University of Miami, J.D.

With over 16 years of experience in the area of estate planning, trademarks, copyrights and contracts, I am currently licensed in Florida and NJ. My expertise includes: counseling clients on intellectual property availability, use and registration; oversee all procedural details of registration and responses with the USPTO/US Copyright Office; negotiate, draft and review corporate contracts and licensing; counsel clients on personal protection, planning and drafting comprehensive estate plans.

View Melissa
Member Since:
July 15, 2020

Melissa T.

Attorney and Law Firm Owner/President
Free Consultation
Get Free Proposal
Maitland, FL
20 Yrs Experience
Licensed in FL
University of Florida Levin College of Law

Melissa Taylor, the President and founding partner of Maurer Taylor Law, specializes in business contract review and drafting and is a second-generation attorney with private firm, in-house counsel, governmental, entrepreneurial, and solo practitioner experience. Melissa has a strong legal background, a dedication to customer service, is friendly, warm and communicative, and is particularly skilled at explaining complex legal matters in a way that's easy to understand. Melissa personally handles all client matters from start to finish to ensure client satisfaction.

View Lawrence
Member Since:
July 20, 2020

Lawrence S.

Free Consultation
Get Free Proposal
Miami/Coral Gables, FL
41 Yrs Experience
Licensed in FL
University of Miami

Lawrence A. “Larry” Saichek is an AV rated attorney and a CPA focusing on business and real estate transactions, corporate law and alternative dispute resolution. With a background including five years of public accounting and six years as “in house” counsel to a national real estate investment company, Larry brings a unique perspective to his clients – as attorney, accountant and businessman. Many clients think of Larry as their outside “in house” counsel and a valued member of their team. Larry is also a Florida Supreme Court Certified Mediator and a qualified arbitrator with over 25 years of ADR experience.

View Brett
Member Since:
July 15, 2020

Brett G.

Free Consultation
Get Free Proposal
New York, NY
33 Yrs Experience
Licensed in NY
New York University

Entertainment Attorney with 30+ years of experience, representing all aspects of the TV, Film, Music and Publishing Industries

View Aaron
Member Since:
July 15, 2020

Aaron M.

Free Consultation
Get Free Proposal
New York, NY
12 Yrs Experience
Licensed in NJ, NY
Fordham University School of Law

Aaron focuses his practice on entrepreneurs and emerging growth companies, providing general counsel services for companies from formation through exit. Aaron frequently advises clients in connection with routine and unique legal, business, and strategic decisions, including corporate, business and technology transactions, angel and venture financings, mergers and acquisitions, protection of intellectual property, and information privacy and data security.

View Stacey
Member Since:
July 16, 2020

Stacey D.

Free Consultation
Get Free Proposal
Detroit, MI
12 Yrs Experience
Licensed in FL, MI
Stetson University College of Law

I enjoy helping businesses of all sizes succeed, from start-ups to existing small and medium sized businesses. I regularly advise corporate clients on a variety of legal issues including formation, day to day governance, reviewing and drafting business contracts and other agreements, business acquisitions and sales, as well as commercial and residential real estate issues, including sales, purchases and leases. As an attorney licensed in both Michigan and Florida, I also advise clients on real estate issues affecting businesses and individuals owning real property in either state, whether commercial, residential or vacation/investment property. I also regularly assist nonprofit organizations in obtaining and maintaining tax exempt status, and provide general legal counsel on all matters affecting public charities, private foundations and other nonprofit organizations.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call