Business Start Up Costs: Projecting Expenses and Tax Treatment

Ask any entrepreneur, and they’ll tell you strategy and planning are essential when it comes to running a business. One of the first things you need to plan for is your business start up costs.

In this article, we’ll walk you through how to estimate costs in theory and practice with a real-world example. We’ll also identify what the IRS officially regards as startup costs, so you can strategically time your expenses to maximize tax efficiency.

Launching a business can be challenging, but it’s a lot easier if you have a financial expert in your corner from day one. Our accounting services for small business can help you get started on the right foot.

Before You Start: How Much Do You Need to Save?

The best way to estimate start up costs is to make a thorough list of every possible expense and seek quotes from relevant parties. (We’ve got a list below to help you get started.)

Once you’ve gathered estimates for one-time and recurring expenses, do the math and ensure you have access to six months of operating expenses available before you start. This will give you the financial runway you need to get your business off the ground.

Having this sum in cash is the least risky way to start, but in most cases, entrepreneurs also tap a combination of private investments, bank loans, and business credit cards.

If you need help securing startup funding, read our guide to SBA loan applications or contact an indinero small business expert today.

Two female colleagues looking at their business start up costs on a tablet together.

Our List of Common Start Up Costs

If this is your first time opening a new business, you may be unsure what start up costs you need to plan for. We’ve compiled this list, covering many common expenses and their average cost. However, your business is unique, so some of these expenses may not be applicable, or you may need to add others. Remember: You can get more accurate estimates by researching online and asking for quotes.

Incorporation Fees

Most states require a nominal fee to incorporate your business. This will vary depending on where you are setting up your business, but on average, you can expect to pay about $150 to register.

For more guidance on incorporating your business, check out our guide on choosing a limited liability corporation (LLC) vs sole proprietorship.

Office Space

Traditional office space can cost between $8-$23 per square foot, per month, while a coworking space costs between $250 and $500 per individual per month. Once again, these figures highly depend on where and how much space you want to rent out. Some businesses may be remote, so the office space cost would be much lower or non-existent.

Marketing

An established B2B business might spend 10% of annual revenue on marketing, while a B2C business may spend 5%. A 2023 Delloite survey of over 300 chief marketing officers revealed their average marketing spend to be ~9% of revenue.

For a specific reference, a survey of 1,500 Canadian small businesses found their average annual marketing spend to be $30,000.

Website

Forbes reports that the average small business website (up to 16 pages) could cost between $2,000-$9,000. Your expenses will depend largely on whether you or someone on your team plans to build the site or if you expect to hire a professional developer to get it live.

Utilities

According to the Building Owners and Managers Association, the average cost of commercial building utilities is ~$2 per square foot. If you plan on having a physical office space for you and your staff, make sure you are considering utilities like these.

New Technology or Machinery

Depending on what kind of business you’re starting, you may need to purchase new hardware or machinery to get your operation off the ground. Costs can vary widely depending on what you need. If you’re only looking to purchase a few new laptops or some online software, this start up cost might only be a few thousand dollars; for more expensive machinery, this expense can be much higher.

Consultants

According to Forbes, standard startup consultancy fees run between $75 and $400 an hour. Consider whether you plan to hire experts to help you get your business up and running, and find a few average prices for the types of consultants you’re looking for to estimate this cost.

Start Up Costs Example

To further illustrate what your startup costs for business might look like, consider the fictional case of Rita’s doughnut shop. We pulled these cost estimates from the Small Business Administration (SBA).

In Rita’s case, if she followed our recommendation of having six months of operating expenses available, she would need $65,000 to shart her shop.