How Much to Start a Business: Calculate Your Startup Costs

Published Monday 5 January 2026

Table of contents

• What is a startup cost?
• What are the different types of startup costs?
• How to calculate startup costs
• Working capital requirements
• Funding your startup
• Things that affect startup business costs
• How to reduce startup costs
• Managing startup costs with the right tools
• FAQs on startup costs

Key takeaways

• Calculate your total startup costs by adding one-time expenses plus 3-6 months of recurring operating costs to ensure you have adequate working capital until your business becomes profitable.
• Prioritize essential expenses first and choose scalable tools that allow you to start with basic versions and upgrade as your business grows, helping you control initial costs while maintaining flexibility.
• Research and compare pricing from multiple suppliers for all major purchases, as costs vary significantly based on your location, industry, and business type.
• Build a contingency fund to cover unexpected expenses like equipment repairs, legal issues, or interest rate changes that can arise outside your forecasted budget.

What is a startup cost?

Startup costs are the initial expenses you need to pay before your business begins operating. These costs help you determine if your business idea is financially viable and how much capital you'll need to launch successfully.

What are the different types of startup costs?

Business startup costs fall into three main categories that cover different phases of launching your business:

• Initial costs: One-time expenses to establish your business
• Ongoing costs: Regular expenses to keep your business running
• Unexpected costs: Unforeseen expenses outside your budget

Initial startup costs

Initial start-up costs are one-time expenses required to legally and physically establish your business. Essential initial costs include:

• Business registration fees
• Legal fees
• Equipment and machinery
• Branding

Ongoing costs

Ongoing costs are regular expenses that keep your business running day to day. You usually pay them monthly or annually.

Common ongoing costs include:

• Rent
• Utilities
• Business insurance
• Finance costs
• Wages and salaries
• Stock and supplies
• Marketing costs
• Software subscriptions

Unexpected costs

Unexpected costs are unforeseen expenses that arise outside your forecasted budget. Setting aside a contingency fund helps you stay in control of cash flow when these unexpected costs arise.

Common unexpected costs include:

• Legal fees: Dispute resolution or compliance issues
• Interest rate changes: Loan cost increases
• Equipment repairs: Machinery breakdowns or replacements

Many businesses set aside contingency funds as a buffer to cover these surprise expenses.

How to calculate startup costs

Calculating startup costs helps you determine exactly how much money you need to launch your business successfully. Follow these four steps to estimate your total startup expenses:

Step 1: Identify your essential expenses

Identify your essential expenses by listing everything your business absolutely needs to start operating. Focus only on must-have items to avoid underestimating your capital requirements.

Essential expenses typically include:

• Equipment: Machinery, tools, and technology needed for operations
• Initial inventory: Stock required for your first sales
• Marketing: Advertising needed to attract your first customers

Skip non-essential purchases initially; you can add these once your business is running.

Step 2: Categorise your expenses

Categorise your expenses into key areas to ensure you don't miss any costs. This systematic approach helps you create a complete budget.

Common expense categories include:

• 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 employee benefits: Initial payroll, contractor payments
• Product or service costs: Initial inventory, packaging

Step 3: Research and compare pricing

Research and compare pricing to maximize your startup budget. Shopping around for the best prices helps stretch your limited funds further.

Try these cost-saving strategies:

• Compare multiple quotes: Get prices from several suppliers
• Consider financing options: Defer payments or spread costs over time
• Choose scalable tools: Start with basic versions and upgrade as you grow

Cost variations depend on:

• Location: Major cities typically have higher rents and wages
• Industry: Some sectors require expensive specialised equipment
• Business type: Retail needs more inventory than service businesses

Step 4: Total your startup costs

Total your startup costs using this formula to determine how much capital you need:

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

Example calculation:

• One-time costs: $30,000
• Monthly recurring costs: $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 operating expenses to sustain your business until it becomes profitable.

The timeline to profitability varies for each business. The longer you can fund your recurring expenses, the less likely you'll face cash flow problems before becoming profitable.

If you're in New Zealand and need help calculating your small business startup costs, check out Business.govt.nz's advice on how much money you need to start a business.

Working capital requirements

Beyond the initial, one-off costs, you'll need money to cover your day-to-day operating expenses until your business starts turning a profit. This is your working capital. It's the fuel that keeps your business running.

Think of it as the cash reserve that pays for things like rent, inventory, and staff wages before your customer payments come in. Having enough working capital is essential for managing your cash flow and ensuring your business can run smoothly without financial stress.

Funding your startup

Once you know how much money you need, the next question is where to get it. Most new business owners face a choice between using their own money or borrowing from others.

Using savings vs. business loans

Using your personal savings means you start debt-free and retain full control of your business. However, it also puts your personal finances at risk. A business loan can provide a larger amount of capital to get you started or help you grow faster, but it comes with interest payments and an obligation to repay the lender. Illustrating their importance, total business loans from New Zealand's registered banks amounted to over $132 billion as of November 2025.

When to consider external funding

External funding might be the right move if you need to make significant investments in equipment, secure a commercial space, or hire a team from day one. It's also an option when your personal savings aren't enough to cover your calculated startup costs and provide a healthy working capital buffer.

Things that affect startup business costs

Startup costs vary significantly based on several key factors that affect your total investment requirements.

Primary cost factors:

• Business type: Retail, service, or online models have different needs
• Location: Geographic area affects rent, wages, and operational costs
• Industry: Specialized sectors may require expensive equipment or licensing
• Technology requirements: Software, hardware, and digital infrastructure needs

Your business type

Retail businesses

These businesses sell products directly to customers from a physical storefront.

Retail businesses will likely face higher rents (for a desirable location), utility bills, and storage costs.

For example, a clothing store must budget for a storefront lease, typically in a central location with lots of foot traffic. It then needs to fit out the store with appealing fixtures and lighting, and display lots of inventory in different sizes and styles.

Online businesses

Online businesses sell products or services to customers through digital platforms. If you're starting an online business, specific costs like website hosting and e-commerce tools are key.

Read more in this guide to starting an online business.

Online businesses typically have lower overheads than physical stores but require different investments:

Essential online business costs:

• Website development: Professional, user-friendly design
• Payment processing: Secure online payment systems
• Digital marketing: Strategy to attract customers without foot traffic
• Warehousing: Physical space for inventory storage (if applicable)

Service-based businesses

Businesses that sell services rather than products often have smaller overheads as they don't need a fancy storefront or a large inventory, but will likely spend more on labour, equipment and software, and licensing or certification.

For example, an accountancy firm leases office space, buys fixtures and fittings, invests in professional software, and hires skilled staff. They may also need professional protections; Chartered Accountants ANZ notes that complying PI insurance is essential in Australia to cap liability in the event of a claim.

Here's more information on the differences between online and bricks-and-mortar businesses.

Your location and industry

Major cities or rural areas?

Doing business in major cities typically brings higher rent, wage, and utility costs, as these areas are in high demand with a high cost of living.

But while rural areas tend to have lower rents and wages, you may face higher transport and logistics costs as rural locations are often less accessible and may be further away from your customers.

Niche industries

A business operating in a niche industry generally faces higher upfront costs because it needs specialised equipment, materials, and staff expertise.

For example, a company that makes medical devices needs bespoke machinery, expert-level employees, and materials or components that are difficult to source.

Legal requirements

Some industries (particularly regulated industries) require expensive certifications, permits, and licences that add substantially to upfront costs. For example, a food and beverage business may need health and safety permits before it can legally trade.

As another example, the basic licensing fee to apply for a financial institution licence in New Zealand is $1,024.93, with further hourly charges possible for complex applications.

Marketing and branding expenses

Brand identity

Building a strong brand identity is essential for any new business. It makes the business memorable and recognisable, and shapes customers' perceptions of it.

A new business needs to invest in designing a logo and creating a website. It also needs clear brand messaging, such as its value proposition, to differentiate it from the rest of the market.

Digital marketing

Digital marketing is the promotion of your business on social media, email, and search engines.

Digital marketing can increase the initial costs to start a business, but it also puts the product or service directly in front of its ideal customer, which could provide quick returns.

Some digital marketing methods, like social media and content creation (blogging), are budget-friendly ways for businesses to connect with customers. It's also quite easy to track the return on investment (ROI) and scale up profitable methods.

Digital marketing costs range from budget-friendly to expensive depending on your approach:

• Low-cost options: Social media and content creation
• Higher investments: Comprehensive campaigns in competitive industries
• Measurable returns: Easy to track ROI and scale profitable methods

Here's more practical advice on digital marketing for small businesses.

Required equipment and technology

Types of equipment

If the business needs specialised equipment, it'll probably cost more than easily accessible items.

For example, an accountancy firm needs computers, desks, and a printer or two. But a medical consultancy might need to buy specialised, bespoke equipment.

Smart technology

To lower your upfront costs, you might:

• invest in refurbished technology, or pre-owned devices returned to their original condition
• choose cloud-based software that scales with the business – for example, by starting with a single-user licence and upgrading it as the company grows

Insurance and risk management

Insurance protects a business from risks and liabilities.

Types of business insurance

There are three main business insurance categories:

• 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 a business's physical assets, like buildings and machinery

Learn more about the types of business insurance.

Insurance requirements and costs can vary

Business insurance requirements and costs depend on things like:

• Industry: Businesses in high-risk industries like construction need more comprehensive liability and workers' compensation coverage than a retail business
• Location: Businesses in urban areas with high foot traffic need more extensive liability insurance than those in rural areas
• Size of the business: Larger businesses with more staff, customers, and equipment need more expensive and comprehensive protection

How to reduce startup costs

When first starting out, you need to keep spending under control to keep your business financially stable. Build a sensible budget, stick to essential expenses, choose scalable tools, and outsource wisely.

In this section, you’ll find practical tips for managing and reducing startup costs.

1. Build a budget

Startups can struggle because they overspend in important areas. Building a budget (and sticking to it) helps you manage and reduce startup business costs. A budget breaks down your total expected costs to help you spend your money wisely and have a clear view of your cash flow.

Here's more about budgeting and forecasting.

2. Prioritise essential expenses

To reduce the risk of cash flow problems, focus on the essential expenses at first: anything the business needs to operate: industry licences, equipment, initial inventory, and so on.

You can think about buying non-essentials and luxuries later on, once your business is up and running.

3. Choose scalable tools

Software tools that are 'scalable' let you start out with the low-cost basics and upgrade as you grow, a smart way to keep your day-one costs down with an eye to the future.

Xero is cloud-based accounting software that grows with your business. For example, Xero's payroll features automate your pay runs to make the process quick and efficient. And as your business grows, add a third-party payroll app to meet your expanding needs.

4. Outsource wisely

Outsourcing tasks to skilled freelance accountants and bookkeepers helps keep startup expenses down.

Use the starting a business checklist to make sure you capture every startup expense. Avoid paying full-time salaries by hiring professionals when you need to, so you can focus on your business and leave things like compliance and organising financial records to the specialists.

Here's how a bookkeeper can help your business. And if you give your bookkeeper (or accountant) access to Xero, you can work with them on your financial data at the same time.

Managing startup costs with the right tools

Getting a clear picture of your startup costs is a vital first step. Keeping track of them is just as important. Using the right tools from the beginning helps you stay organised, monitor your spending, and see how your business is performing in real time.

With accounting software like Xero, you can manage your budget, track expenses, and watch your cash flow from a single, intuitive dashboard. It simplifies your finances so you can focus on what you do best: running your business. See for yourself how easy it can be. Try Xero for free.

FAQs on startup costs

Here are answers to some common questions about the cost of starting a business.

Is $5,000 enough to start a business?

Yes, $5,000 can be enough to start many types of businesses, especially those that are service-based or online. For context, the Reserve Bank of New Zealand defines a 'small' business as one with a turnover of less than $1m, demonstrating that a lean business can start with a small budget and grow from there. A business like freelance writing, consulting, or a small e-commerce store can often be launched with this budget by focusing on essential tools and lean operations.

Is $10,000 enough to start a business?

A $10,000 budget opens up even more possibilities. It's a feasible amount for many service businesses, e-commerce ventures, or small-scale operations like a market stall or a local cleaning service. This budget allows for initial marketing, basic equipment, and a small working capital buffer.

What's the minimum amount needed to start any business?

The absolute minimum can be very low, sometimes under $100 for a simple online service business where you already own a computer. The key is to start with a business model that has minimal overheads, like dropshipping or offering a digital skill you already have.

How long should my working capital last?

It's wise to have enough working capital to cover at least three to six months of your ongoing expenses. This provides a safety net to keep your business running while you build up your customer base and before you start generating a consistent profit.