Startup costs: how much to start and run a business

Published Monday 30 March 2026

Table of contents

• What is a startup cost?
• What are the different types of startup costs?
• Common startup costs with examples
• How to calculate startup costs
• Things that affect startup business costs
• Average startup costs by business type
• How to reduce startup costs
• Startup funding options
• Stay on top of business costs with Xero
• FAQs on startup costs

Key takeaways

• Calculate your total startup costs by adding one-time expenses plus 3-6 months of recurring costs to create a realistic budget that includes a financial buffer for unexpected expenses.
• Prioritise essential expenses like business registration, core equipment, and initial inventory over non-essential items like premium furniture or advanced software features until your business generates revenue.
• Reduce costs by choosing scalable tools that start with basic features and can grow with your business, such as cloud-based software with upgrade options.
• Research and compare pricing from multiple suppliers for major purchases, and consider financing options or refurbished equipment to stretch your budget further.

What is a startup cost?

Startup costs are the initial expenses a new business incurs before it can begin operating. These include one-time purchases like equipment and registration fees, plus early operating expenses like rent and marketing.

Calculating your startup costs helps you assess whether your business idea is financially viable. It also tells you how much capital you need to launch successfully.

What are the different types of startup costs?

Business startup expenses fall into three categories: initial, ongoing, and unexpected. Understanding each type helps you build a realistic budget and avoid cash flow surprises after launch.

Initial startup costs

Initial startup costs are one-off expenses that physically and legally establish your business. Common examples include:

• Registration fees: business name registration, company formation, and licences
• Legal fees: contracts, terms of service, and intellectual property protection
• Equipment and machinery: tools, computers, and industry-specific gear
• Branding: logo design, business cards, and initial website setup

Ongoing costs

Ongoing costs are regular, recurring expenses that keep your business running day-to-day. These are typically charged monthly or annually and include:

• Rent: office, retail, or warehouse space
• Utilities: electricity, water, internet, and phone
• Business insurance: liability, property, and workers' compensation
• Finance costs: loan repayments and interest charges
• Wages and salaries: employee pay and contractor fees
• Stock and supplies: inventory and consumables
• Marketing costs: advertising, social media, and promotions
• Software subscriptions: accounting, CRM, and productivity tools

Unexpected costs

Unexpected costs are unforeseen expenses that fall outside your planned budget. Examples include emergency equipment repairs, sudden legal fees, or interest rate increases on loans.

These costs can cause serious cash flow problems if you're not prepared. To avoid this, add a 10–20% buffer to your total budget to prepare for unexpected costs like delayed permits or last-minute purchases.

Common startup costs with examples

To build an accurate budget, it helps to see a breakdown of common expenses. Here are some of the most typical costs you'll face when starting your business.

Business registration and legal costs

These are the fees required to legally form your business. This can include company registration, business licences, permits, and professional fees for legal advice on contracts or business structure.

Equipment and technology

This category covers the physical tools you need to operate. It includes everything from computers and software to specialised machinery, vehicles, or point-of-sale systems.

Marketing and branding

These are the costs to create your brand and attract your first customers. Expenses can include logo design, website development, online advertising, and printing business cards or flyers.

Premises and utilities

If your business needs a physical location, you'll have costs for rent or a mortgage. You'll also need to budget for utilities like electricity, water, and internet.

Initial inventory and supplies

For businesses that sell products, this is the cost of your first batch of goods. For service businesses, it might include the supplies needed to perform your work.

How to calculate startup costs

Calculating your startup costs gives you a clear picture of how much money you need to launch. Follow these four steps to estimate your total investment accurately.

Step 1: Identify your essential expenses

List every expense your business needs to operate from day one. Include machinery, initial inventory, marketing, and any required licences or permits.

Leave non-essential purchases for later. Underestimating at this stage means running short on capital when you need it most.

Step 2: Categorise your expenses

Group your expenses into categories to make sure nothing gets missed. Use these common categories as a starting point:

• Office space and utilities: rent, utilities, furniture
• Equipment and supplies: computers, tools, office supplies, machinery
• Marketing and branding: website, logo, advertising, business cards
• Legal and administrative: operating licences, permits, legal fees
• Salaries and benefits: initial payroll, contractor payments
• Product or service costs: initial inventory, packaging

Step 3: Research and compare pricing

Research pricing carefully to stretch your budget further. Consider these approaches:

• Compare suppliers: get multiple quotes for major purchases
• Explore financing: look for options that let you defer or spread payments
• Choose scalable tools: start with basic plans and upgrade as you grow

Keep in mind that costs vary based on your region, industry, and business type. Rent in major cities runs higher than rural areas, and some industries require expensive specialised equipment.

Step 4: Total your startup costs

Add up all your costs using this formula:

Total startup costs = One-time costs + (recurring costs × 3–6 months)

For example, if your one-time costs equal $30,000 and your recurring monthly costs are $5,000:

• 3-month buffer: $30,000 + ($5,000 × 3) = $45,000
• 6-month buffer: $30,000 + ($5,000 × 6) = $60,000

Include 3–6 months of ongoing costs in your total. This buffer, which some guides recommend as 3–6 months of operating capital, keeps your business running until it can sustain itself and become profitable.

The longer you can fund recurring costs, the less likely you'll face cash flow problems before reaching profitability.

Things that affect startup business costs

Several factors affect your startup costs, including your business type, location, industry, legal structure, and technology requirements. Understanding these variables helps you create a more accurate budget for your specific situation.

Your business type

Retail businesses sell products directly to customers from a physical storefront. They typically face higher costs for rent, utilities, and inventory storage.

A clothing store, for example, needs to budget for:

• Storefront lease: a central location with high foot traffic
• Fit-out costs: fixtures, lighting, and display equipment
• Inventory: stock in multiple sizes, styles, and quantities

Online businesses sell products or services through digital platforms. They typically have lower overheads than physical retail stores but face different cost priorities.

Key expenses for online businesses include:

• Website and hosting: domain registration, hosting fees, and e-commerce platform subscriptions
• Payment processing: secure checkout systems and transaction fees
• Digital marketing: SEO, paid advertising, and social media to drive traffic
• Warehousing: storage space if you hold physical inventory

Read more in the guide to starting an online business.

Service-based businesses sell expertise rather than physical products. They often have smaller overheads since they don't need retail space or large inventories, but they spend more on labour, software, and professional certifications.

An accountancy firm, for example, typically budgets for:

• Office space: a professional location for client meetings
• Equipment: desks, computers, and office furniture
• Software: accounting platforms and productivity tools
• Staff: skilled employees and specialist contractors

Find more information on the differences between online and bricks-and-mortar businesses.

Your location and industry

Location affects your costs significantly. Major cities typically bring higher rent, wages, and utility costs due to high demand and cost of living.

Rural areas offer lower rents and wages but may increase your transport and logistics costs. Remote locations can also put you further from customers and suppliers.

Niche industries often require higher upfront investment. Specialised equipment, hard-to-source materials, and expert staff all add to your costs.

A medical device company, for example, needs bespoke machinery, highly skilled employees, and specialised components that may have limited suppliers.

Legal requirements vary by industry and can add significantly to your upfront costs. Regulated industries often require expensive certifications, permits, and licences before you can legally operate.

A food and beverage business, for example, may need health and safety permits, food handling certifications, and regular inspections. These costs recur as licences need renewal.

Marketing and branding expenses

Brand identity makes your business memorable and shapes how customers perceive you. A strong brand helps you stand out from competitors and build trust with your target audience.

Key branding investments include:

• Logo design: a professional, recognisable visual identity
• Website: your digital storefront and information hub
• Brand messaging: clear value proposition and consistent voice

Digital marketing promotes your business through social media, email, and search engines. It puts your product or service directly in front of your ideal customer and lets you track results in real time.

Some methods are budget-friendly, like social media and blogging. Others, like paid advertising in competitive industries, require significant investment. Start with low-cost tactics, measure your return on investment, and scale up what works.

Find more practical advice on digital marketing for small businesses.

Required equipment and technology

Equipment costs depend on how specialised your industry is. Standard office equipment like computers, desks, and printers is relatively affordable and easy to source.

Specialised industries face higher costs. A medical consultancy, for example, may need bespoke diagnostic equipment that costs significantly more than standard office gear.

Smart technology choices can lower your upfront costs without sacrificing quality:

• Refurbished technology: pre-owned devices restored to original condition, often at 30–50% savings
• Scalable software: cloud-based tools that let you start with basic plans and upgrade as you grow

Insurance and risk management

Business insurance protects your company from risks and liabilities. The three main categories are:

• Liability insurance: covers customer claims related to accidents, injury, and property damage
• Workers' compensation: supports employees injured on the job
• Property insurance: covers damage to physical assets like buildings and machinery

Learn more about the types of business insurance.

Insurance requirements and costs vary based on several factors:

• Industry: high-risk industries like construction need more comprehensive coverage than retail businesses
• Location: urban areas with high foot traffic require more extensive liability insurance
• Business size: more staff, customers, and equipment means more comprehensive protection

Average startup costs by business type

Your startup costs will vary significantly based on your business model. While there's no single average, understanding the key expenses for your business type helps you plan.

Retail business startup costs

Retail businesses often have high upfront costs due to the need for a physical storefront, store fit-out, and a large initial inventory. Rent in a prime location is usually the biggest expense.

Online business startup costs

An online business typically has lower startup costs because there's no need for a physical retail space. Key expenses include website development, e-commerce software, digital marketing, and inventory if you sell physical products.

Service-based business startup costs

Service-based businesses, like consulting or graphic design, can have very low startup costs. Expenses are often limited to business registration, a professional website, marketing, and any specialised software.

Home-based business startup costs

Starting a business from home is one of the most affordable options. Costs are usually minimal and may only include business registration, a dedicated phone line, basic supplies, and marketing.

How to reduce startup costs

Reducing startup costs helps you preserve capital and extend your runway. Focus on four key strategies: build a realistic budget, prioritise essential expenses, choose scalable tools, and outsource wisely.

1. Build a budget

A budget breaks down your expected costs and helps you spend money wisely. It gives you a clear view of cash flow and prevents overspending before your business generates revenue.

Find more about budgeting and forecasting.

2. Prioritise essential expenses

Focus on essentials first to reduce cash flow risk. Essential expenses include industry licences, core equipment, and initial inventory.

Delay non-essentials like premium office furniture, advanced software features, or expanded inventory until your business is generating revenue.

3. Choose scalable tools

Scalable tools let you start with basic features and upgrade as you grow. This keeps day-one costs low while giving you room to expand.

Cloud-based accounting software like Xero works this way. Start with core features, then add payroll automation or third-party apps as your needs grow.

4. Outsource wisely

Outsourcing to freelance accountants and bookkeepers helps keep costs down. You avoid full-time salaries while getting specialist expertise for tasks like compliance and financial record-keeping.

This frees you to focus on running your business. Give your bookkeeper or accountant access to your accounting software so you can collaborate on financial data in real time.

Find out how a bookkeeper can help your business.

Startup funding options

Once you've calculated your startup costs, the next step is to figure out how you'll pay for them. Here are some common funding options for new businesses.

Personal savings and bootstrapping

Using your own money is the most common way to fund a startup. This method, known as bootstrapping, means you maintain full control of your business without taking on debt.

Small business loans

Banks and online lenders offer loans specifically for new businesses. You'll need a solid business plan and good credit to qualify, but a loan can provide the capital you need to cover major expenses.

Grants and government programmes

Some government agencies and private organisations offer grants to new businesses, particularly those in specific industries or communities. Grants don't need to be repaid, but competition is often high.

Investors and crowdfunding

For high-growth potential businesses, you might seek funding from angel investors or venture capitalists in exchange for equity. Crowdfunding platforms also allow you to raise smaller amounts of money from a large number of people.

Stay on top of business costs with Xero

Managing your startup costs is easier with the right tools. Xero gives you everything you need to stay financially organised from day one:

• Budget management: set spending limits and track against them
• Expense tracking: monitor costs in real time
• Cash flow visibility: see your financial position at a glance

Make smarter business decisions with a clear view of your finances. Get one month free to see how Xero can help you launch with confidence.

FAQs on startup costs

Here are answers to common questions about startup costs.

What are the five most common startup costs?

The five most common startup costs are business registration and legal fees, equipment and technology, marketing and branding, premises and utilities, and initial inventory or supplies.

How much should I budget for unexpected startup costs?

Set aside a portion of your budget as a contingency fund. While 10–20% is a common recommendation, the ideal amount can vary; research suggests a percentage-based contingency is often between 5–15% depending on the industry. This buffer helps you handle surprises like equipment repairs or unexpected fees without disrupting your cash flow.

Can I start a business with no money?

Some businesses can launch with minimal capital, especially service-based or online businesses. However, most ventures require at least some investment for registration, basic equipment, and initial marketing.

What's the difference between startup costs and operating expenses?

Startup costs are one-time expenses to launch your business, like registration fees and initial equipment. Operating expenses are ongoing costs to run your business, like rent, utilities, and wages.

How long do startup costs typically last?

Most startup costs occur in the first 3–6 months before launch and immediately after. Plan for your initial investment plus enough capital to cover operating expenses until your business becomes profitable.