How much does it cost to start a business?

Published Tuesday 9 June 2026

Table of contents

• What are startup costs?
• Average startup costs by business type
• Types of startup costs
• Factors that affect startup business costs
• How to reduce startup costs
• Online bookkeeping and invoicing for startups
• How to calculate startup costs
• Simplify your startup finances with Xero
• FAQs on startup costs

Key takeaways

• Most small businesses in the US spend between $3,000 and $200,000 or more to get started, depending on industry, location, and business model.
• Startup costs fall into three categories: initial one-time expenses, ongoing operational costs, and unexpected expenses that catch many new owners off guard.
• The One Big Beautiful Bill Act, signed in July 2025, raised the Section 195 startup cost deduction from $5,000 to $50,000, giving new businesses a significant tax advantage in their first year.
• Tracking your costs from day one with cloud-based accounting software can help you stay on budget, prepare for tax season, and make confident financial decisions.

What are startup costs?

Startup costs are the expenses you incur to get a new business up and running. These include everything from legal fees and equipment purchases to marketing, inventory, and office space. The U.S. Small Business Administration (SBA) notes that labor is often one of the biggest ongoing expenses for new businesses.

How much you spend depends on your industry, location, and business model. A freelance consultant working from home might launch for under $3,000, while a brick-and-mortar restaurant could require $200,000 or more. Understanding what falls into the "startup cost" category helps you plan a realistic budget and avoid financial surprises.

The Internal Revenue Service (IRS) defines startup costs as amounts you pay or incur to create an active trade or business, or to investigate the creation or acquisition of one. This distinction matters because many of these costs are tax-deductible, which can reduce your financial burden in year one.

Average startup costs by business type

Your total startup investment varies widely based on the type of business you plan to run. Here are typical ranges for common business models to help you set expectations.

• Service-based businesses (consulting, freelancing, coaching): $3,000 to $10,000. These typically require minimal physical infrastructure and can often operate from home.
• Online businesses (e-commerce, software as a service, digital products): $5,000 to $50,000. Costs include website development, hosting, digital marketing, and potentially inventory or software development.
• Retail businesses (storefronts, pop-up shops): $50,000 to $150,000. Lease deposits, interior build-out, inventory, point-of-sale systems, and staffing drive costs higher.
• Manufacturing businesses: $50,000 to $500,000 or more. Equipment, raw materials, facility leases, permits, and quality control infrastructure account for the bulk of spending.
• Restaurants and food service: $175,000 to $750,000 or more. According to National Restaurant Association data, kitchen equipment, health permits, and staffing drive high costs. Interior design and build-out add significantly to the total.

These ranges are estimates. Your actual costs will depend on your specific plans, location, and how lean you choose to operate in the early stages.

Types of startup costs

Not all startup expenses hit your bank account at the same time. Breaking them into categories helps you budget more accurately and avoid cash flow surprises. Most startup costs fall into three groups: initial one-time expenses, ongoing operational costs, and unexpected costs.

Initial costs

These are the one-time expenses you pay before your business opens or during its first few weeks. They form the foundation of your startup budget.

• Business registration, licenses, and permits: $50 to $500 depending on your state and industry
• Legal and professional fees (attorney, accountant, business plan): $500 to $5,000
• Equipment and technology (computers, software, tools): $1,000 to $50,000
• Initial inventory or supplies: varies widely by business type
• Office or retail space deposits and build-out: $2,000 to $50,000 or more
• Branding, website design, and initial marketing: $500 to $10,000

There is good news for new business owners on the tax front. The One Big Beautiful Bill Act, signed into law in July 2025, raised the Section 195 startup cost deduction from $5,000 to $50,000. This means you can deduct up to $50,000 in qualifying startup expenses in the tax year your business begins.

Any remaining costs can be amortized over 15 years. Check with a tax professional to confirm the current limits that apply to your situation.

Ongoing costs

Once your doors are open (physically or digitally), recurring expenses keep your business running month to month. These are the costs you need to plan for beyond launch day. Understanding them is key to managing your business overhead.

• Rent or lease payments
• Utilities (electricity, internet, phone)
• Payroll and employee benefits
• Insurance premiums
• Marketing and advertising
• Software subscriptions and cloud services
• Inventory replenishment

Ongoing costs vary significantly by business type and size. A home-based consulting business might spend $500 to $2,000 per month, while a retail shop with employees could run $10,000 to $30,000 per month or more. Track these expenses carefully from day one so you can forecast your cash flow and adjust your budget as you grow.

Unexpected costs

Even the most detailed business plan can't predict every expense. Unexpected costs are the ones that catch new business owners off guard, and they happen more often than you might think.

• Equipment repairs or replacements
• Regulatory changes or new compliance requirements
• Market downturns that reduce revenue
• Legal disputes or contract issues
• Supply chain disruptions that increase material costs

Data from Xero Small Business Insights reinforces the importance of this buffer: US small business sales growth dropped from a peak of 4.1% in the September quarter of 2025 to just 0.9% in the December quarter, partly driven by trade policy uncertainty. Building a contingency fund of 10% to 20% of your total startup budget can help you weather these kinds of shifts without putting your business at risk.

Factors that affect startup business costs

No two startups spend the same amount to get off the ground. Several factors influence your total investment, and understanding them helps you make smarter decisions about where to allocate your budget.

Your business type

The nature of your business is the single biggest factor in determining your startup costs. A service-based business with no physical inventory will cost a fraction of what a restaurant or manufacturing operation requires.

Retail businesses, for example, face significant build-out expenses. Industry data from 2025 puts the average retail build-out cost in the US at approximately $155 per square foot. For a 1,500-square-foot shop, that translates to over $230,000 in construction and fit-out costs alone, before inventory, staffing, or marketing.

According to Xero Small Business Insights, US small business sales growth averaged just 2.4% year over year in 2025, roughly half the long-term average of 5.5%. Starting lean and scaling gradually can help you manage risk in a slower-growth environment.

Your location and industry

Where you set up shop significantly affects your costs. Rent, wages, taxes, and licensing fees vary dramatically across the country.

Businesses in states like California and New York typically face higher costs for real estate, labor, and compliance. States in the Midwest and Mountain West tend to offer lower operating costs. Rent, labor, and regulatory fees are typically more affordable there. Your industry also plays a role: healthcare and food service businesses face stricter licensing requirements than professional services firms.

Marketing and branding expenses

Getting your name in front of customers requires investment, and the amount depends on your strategy and market. Digital-first approaches tend to be more affordable than traditional advertising.

A basic brand identity (logo, business cards, website) might cost $1,000 to $5,000. Ongoing digital marketing through social media, search engine optimization (SEO), and email campaigns can run $500 to $5,000 per month. The exact cost depends on your industry's competitiveness. Many new businesses start with organic marketing strategies to keep costs low and add paid advertising as revenue grows.

Required equipment and technology

Every business needs tools, but the type and cost of those tools vary widely. A freelance writer might need only a laptop and reliable internet, while a manufacturing startup could require specialized machinery costing tens of thousands of dollars.

Technology costs include hardware (computers, printers, point-of-sale systems), software (accounting, project management, customer relationship management), and communication tools. Cloud-based software has made technology more accessible for startups. Subscription pricing lets you spread costs over time rather than paying large upfront fees.

Insurance and risk management

Insurance is a necessary expense that protects your investment. The type and amount of coverage you need depends on your industry, number of employees, and risk profile.

General liability insurance for small businesses typically costs $400 to $1,500 per year. If you have employees, you'll also need workers' compensation insurance, which varies by state and industry. Professional liability, commercial property, and product liability insurance add to the total. While insurance feels like an extra cost, it's far less expensive than the alternative of covering a major claim out of pocket.

How to reduce startup costs

Spending wisely from the start gives your business a longer runway and more room to grow. Here are practical ways to reduce your initial investment without sacrificing quality.

Start from home

If your business doesn't require a storefront or dedicated workspace, starting from home eliminates one of the largest startup expenses: rent. You may also qualify for a home office tax deduction, which can offset a portion of your housing costs. Many successful businesses, from consulting firms to e-commerce brands, launched from a spare room or kitchen table.

Buy refurbished equipment

New equipment is expensive, and for many startups it's not necessary. Refurbished or certified pre-owned computers, office furniture, and industry-specific tools can save you 30% to 60% compared to buying new. Check manufacturer-certified refurbishment programs for warranties and quality assurance.

Use scalable cloud software

Cloud-based tools let you pay for only what you need and scale up as your business grows. Instead of investing thousands in desktop software licenses, use subscription-based platforms for accounting, project management, invoicing, and customer communication. Most offer starter plans priced for small businesses, so you're not paying enterprise rates on day one.

Outsource non-core tasks

Hiring full-time employees for every function is expensive, especially early on. Consider outsourcing tasks like bookkeeping, graphic design, content creation, and IT support to freelancers or agencies. This approach gives you access to professional expertise without the overhead of salaries, benefits, and office space.

Focus on digital marketing

Digital marketing channels like social media, email, and content marketing are significantly cheaper than print, radio, or television advertising. Start with free organic channels: build a social media presence, create helpful content for your website, and collect email addresses from interested prospects. Add paid advertising later when you have revenue data to guide your spending.

Negotiate with vendors

Many vendors and suppliers offer discounts for upfront payment, long-term contracts, or bulk orders. Don't accept the first price you're quoted. Ask about startup discounts, payment plans, or barter arrangements. Building strong vendor relationships early can lead to better terms as your purchasing volume grows.

Online bookkeeping and invoicing for startups

Keeping your finances organized from day one is one of the smartest moves you can make as a new business owner. Online bookkeeping and invoicing tools help you track every dollar, send professional invoices, and stay prepared for tax season.

Cloud-based accounting software automates many of the tasks that used to require spreadsheets or manual data entry. Bank feeds pull transactions directly into your accounting platform, so you don't have to enter them by hand. Automated invoice reminders help you get paid faster, and expense tracking keeps your spending visible in real time.

Xero offers these capabilities in a platform built for small businesses. Xero can help you stay on top of your startup finances with automated bank feeds, invoicing, and expense tracking. You'll spend less time on bookkeeping and more time on your business. Xero's tiered plans (Early, Growing, and Established) let you choose the level of functionality that matches your business stage, and you can scale up as you grow.

How to calculate startup costs

A clear picture of your total startup investment starts with a structured calculation. Follow these four steps to build a realistic budget before you commit your capital.

1. Identify essential expenses

List every expense you'll need to cover before opening day and during your first three to six months of operation. Include legal fees, licenses, equipment, inventory, marketing, insurance, and any deposits for commercial space. Don't leave out smaller items like business cards, domain registration, or software subscriptions: they add up quickly.

2. Categorize your expenses

Organize your list into categories: one-time initial costs, monthly recurring expenses, and variable costs that change with sales volume. This structure makes it easier to see where your money goes and identify areas where you might cut back. It also helps when you're comparing your budget against industry benchmarks and building a financial forecast.

3. Research and compare pricing

Get actual quotes for your major expenses. Contact landlords, suppliers, insurance agents, and service providers. Compare at least two to three options for each significant cost.

Online research can provide ballpark figures, but real quotes give you the accuracy your budget needs. Don't forget to account for local taxes, shipping fees, and setup charges.

4. Total your startup costs

Add up your one-time costs. Then multiply your monthly recurring expenses by your target runway, typically six to 12 months. Add a contingency buffer of 10% to 20% for unexpected expenses.

This total gives you your minimum startup capital requirement. If the total is higher than expected, revisit your categories and look for areas to cut.

Simplify your startup finances with Xero

Starting a business involves tracking dozens of expenses, managing cash flow, and preparing for tax obligations. Xero's cloud-based accounting software can help you handle all of this in one place, so you can spend less time on financial admin and more time building your business.

Xero gives you a clear view of where your money is going from day one. Automated bank feeds, invoicing, and real-time reporting keep your finances organized. You can categorize startup costs, monitor your cash flow, and collaborate with your accountant or bookkeeper in real time. Xero also offers US-specific tools for IRS compliance and integrates with Gusto for payroll. Explore Xero's plans for your startup and get one month free.

FAQs on startup costs

Here are frequently asked questions about startup costs.

How much does it cost to start a small business?

Most small businesses in the US spend between $3,000 and $200,000 or more to get started. The actual amount depends on your business type, location, and operating model. Service-based businesses and online ventures tend to be the most affordable to launch.

What startup costs are tax-deductible?

Under the One Big Beautiful Bill Act (signed July 2025), you can deduct up to $50,000 in qualifying startup costs in the year your business begins operations. Qualifying expenses include market research, advertising, employee training, and professional fees, with amounts over $50,000 amortized over 15 years.

How long does it take for a startup to become profitable?

Most small businesses take 18 to 24 months to reach consistent profitability, though this varies widely by industry. Service-based businesses with low overhead can break even faster, while capital-intensive operations like restaurants or manufacturing may take three years or longer.

Do I need a business bank account to track startup costs?

Yes. Separating your personal and business finances makes it easier to track expenses, prepare tax returns, and demonstrate business legitimacy. Open a dedicated business bank account before you start spending on your new venture.

What is the best way to fund startup costs?

Common funding sources include personal savings, small business loans from banks or credit unions, SBA-backed loans, business credit cards, and investments from friends or family. The right choice depends on the amount you need, your credit profile, and how quickly you expect to generate revenue.

How can bookkeeping software help manage startup costs?

Bookkeeping software can categorize your startup expenses automatically, making it easier to identify deductible costs when filing your taxes. It also lets you share real-time financial data with your accountant or bookkeeper, which can save time and reduce errors during tax season.