How Much Money Do You Need to Start a Business?

12:01 am

A question I get asked frequently is how much money is required to start a business.  It’s probably on e of the toughest questions to answer because there are so many variables involved.   My usual answer is that it takes anywhere from a couple hundred dollars to several million.  Why such a wide margin?  Well if you are interested in opening a manufacturing plant such as a solar manufacturing company, it’s going to take millions of dollars.  On the other hand, if you are planning to open a pool cleaning service it might only take a few hundred.  Let’s take a look at some of the variables of starting a business.

 Technology

Business Licenses

Depending on how you structure your business the cost of setting up your business structure and getting your licenses is inexpensive.  You can create an LLC for less than one hundred dollars.  Your Federal and State tax ID’s are also really inexpensive, usually under $20. 

Marketing

Marketing can range from zero dollar marketing tactics, such as free classifieds to very expensive advertising such as Television.  Marketing is one area, in the initial stages of your business where you can substitute money for time and energy.  For example, you can easily produce a video market it free on your website or videocast directories.  The major expense will be your time and energy in creating the video.  This includes all of your ads.  It’s easy to let a graphics design person create all of your content for you, but will be very expensive in the long run. 

Marketing is one area where you need to do some research to find the best tactics and strategies.  Overall, if you are on a shoestring budget, you can initially do it for free regardless of whether you operate an offline or online business.  If you want to produce all of your ads yourself, you may want to invest in a desktop publishing program such as Microsoft Publisher as a tool to help you create your ads.  These applications cost anywhere from $75 to $500.  On the other hand, you could always get by initially with PowerPoint to create your ads. 

Training

You may want to consider ordering some training materials to help you along in the areas where you are weak.  You can expect to pay anywhere from $10 to a couple hundred dollars for some great introductory training. 

Insurance

In a lot of cases you don’t need to order business insurance.  I definitely recommend insurance in cases where the public can get injured from your product or service.   The cost of insurance is dependent on your industry.  I owned a sports bar once where I had to pay $24,000 per year in property and casualty insurance.  I know of some surgeons that pay up to $100,000 per year in malpractice insurance.  Those industries are more of the extreme examples because of the liability involved, but you need to do some research for your industry.

Fixed Overhead

If at all possible, in the early stages of your business work out of your home so you can avoid making big monthly payments for your lease and utilities.  There is enough going on in the early stages of your business than to deal with the worry of making these payments.  If your business requires leased retail or office space, you usually are required to come up with first and last month lease payment as well as a security deposit.  You will also be required to pay a utility deposit to your electric and gas companies.  You will definitely be required to carry a minimum amount of property insurance as well.  You can see that it starts getting expensive fast and if you’re in the start up phase, it’s a lot of added pressure