Startup Costs for Entrepreneurs

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Bailey Maybray
Bailey Maybray



You stare at a spreadsheet, eyes darting from dollar sign to dollar sign.

Startup Costs: A woman stands firm surrounded by flying money, calculators, and other financial symbols.

Since creating your company a few months ago, your startup costs have skyrocketed. You had no clue about insurance or licensing. An Excel spreadsheet, once a reliable summary of your finances, has imploded into a bundled mess of calculations.

Most entrepreneurs create businesses with a general understanding of their costs. You make money (revenue). You incur costs (expenses). But the complexity of financing reels its ugly head as entrepreneurs continue to grow their businesses. Taxes, amortization, insurance… Where do you begin to tackle it all?

What Are Startup Costs?

Startup costs are the amount you pay and invest to start, grow, and sustain a business; they also include expenses associated with acquiring another company.

“Startup costs center on what gets you to your minimum viable product (MVP) — to your point of operations,” says Kumar Arora, CEO of Arora Ventures. “This includes [setting up] your LLC, your website, and other foundational needs. But it may also include payroll for staff or employees.”

Research and Development

For aspiring entrepreneurs, you’ll invest in R&D throughout your startup journey. You might sink a lot of money into building a product, defining your first set of customers, or creating market research.

Innovative startups continue to embed R&D into their everyday activities. R&D enables businesses to develop additional features, create new product lines, and pivot when necessary. Even well-established companies, like Amazon and Alphabet, dedicate 10%+ of their revenue to R&D.

To get started with R&D, consider your goals, budget, and skill set. For example, hiring a software engineer in-house could make developing an app or website easier and faster. Also consider proprietary knowledge — for example, hiring someone externally to develop a product could raise data privacy concerns.

Loans and Borrowing

Startups often use business loans to grow their workforce, purchase equipment, and expand. If you don’t have savings to throw around, loans can open doors for your company in the short term. Most banks, credit unions, and financial institutions such as PayPal offer business loans.

Before taking out a loan, remember to consider your long-term business goals. Larger loans can help you reach milestones faster, but paying them off later could prove challenging. Are you aiming to make a profit sooner or later? How will you cover the interest? Develop a game plan on paying back the loan before you take one out.


Setting up insurance early will protect you and your organization from potential risks. For example, general liability insurance covers claims made against your business, such as bodily harm or personal injury. Other types of insurance include:

Commercial property insurance: Protects your startup’s equipment, such as computers or technology.

Workers’ compensation insurance: Often required by certain states, this insurance helps pay wages in the event of a work-related injury or accident.

Commercial auto insurance: Protects your business from liability in case of a business-owned automobile accident.

Depending on your startup, you might want other types of insurance. For example, if you open a store near a river, commercial flood insurance could protect you from property damages.

To start, assess your overall risks. Where could problems arise? Speak to a licensed insurance agent to explore the best packages.


Many businesses — including online-only companies — require some sort of license to operate. The most common types include:

Business operation license: Required for businesses to operate in their home city, county, or state.

Seller’s permit: Permits businesses to sell products or services online.

Zoning permit: Your city will need to approve the proposed location of your business and ensure it meets certain requirements. For example, some areas in town have zoning restrictions that prohibit commercial buildings from operating.

Health permit: Most restaurants, cafes, and eateries will require a health license or permit.

Speaking to a professional can help you better understand which permits you need to operate. Most licenses require payment, with some costing hundreds of dollars, so plan your budget accordingly. Note that cutting corners on permits will set your business up for legal risks and potential ruin.

Technology and Equipment

Computers, tablets, software, and other tech products could be pricey. Online businesses can spend a bundle on subscription-based applications; for startups with offices, add on the cost of infrastructure like business internet plans.

Write down your core business model, then assess where you need technology and what options you could pursue. For example, if you plan on running a content marketing agency, search engine optimization (SEO) tools such as Ahrefs are likely necessary.

Separate the tech you want into two piles: must-haves and nice-to-haves. When launching your venture, remember to stay lean. Even if a pricey graphic design tool (e.g., Photoshop) could make your branding stand out, consider less expensive options (e.g., Canva) that work for now.

Startup costs comparison: on the left side, must-haves include a laptop and a printer. On the right side, nice-to-haves include Adobe Photoshop, an iPad, and a car.

Marketing and Advertising

Marketing and advertising gets the word out there about your organization. Most startups spend 11% of their revenue on marketing.

To find out what you need, consider how your brand will fit into the following marketing categories:

Digital marketing: Do you plan on having a strong online presence, including social media and paid advertising? You could run your startup’s Twitter, Facebook, Instagram, and LinkedIn by yourself. But that may take an obscene amount of time, so hiring a digital marketer might make sense.

Content marketing: Do you want your startup to produce high-quality, searchable content? Your costs will then have to accommodate SEO research, graphic design, and writers. Though content marketing takes time to see results, it can expand your organic traffic in the long term.

Customer relations: Will your business need a portal to handle its customer relations? If you foresee buyers having lots of questions, it could be essential to invest in a customer help team. Use customer relationship management (CRM) systems to help manage a growing customer base.

Similar to your technological needs, jotting down your priorities can help you tackle broad categories. For example, not every startup needs TikTok or Twitter to succeed, so you can save time by avoiding those platforms altogether.

Employee Expenses

Over 8 in 10 entrepreneurs identify as solopreneurs, or business owners who run their organization without employees. Many work as consultants, marketers, and freelancers. When you launch your startup, hiring employees might not work with your budget. But eventually you might need another pair of hands.

For example, you might have an idea for a killer piece of software, but lack the technical chops to pull it off. Mental health could also influence your decision to hire an employee. If you want to avoid burnout — in a Hustle survey, 60%+ entrepreneurs suffered from it — an extra worker could help share the load.

How do these employment considerations impact startup costs? You’ll have to pay each employee a salary — this can vary widely based on industries and roles — alongside some benefits, such as health insurance. On top of that, it costs an average of $4k to hire and onboard a new employee.

Startup Cost Examples

Putting everything together, how do startup costs play in real life?

Bryan “Wacko” Wachs runs a bike rack startup — QuikRStuff — which generated $1.2m+ in 2021 revenue. With a direct-to-consumer (D2C) model, QuikRStuff allocated some two-thirds of its budget on raw materials. Unlike service-based companies, D2C brands have to account for the expenses of manufacturing products.

Mark Convery and Av Grewal founded an alcoholic beverage company in 2019 called CoCo Vodka & CoCo Rum. The canned hard coconut water maker dedicates 26%+ of its budget to advertising and promotions. Given the level of competition in the space, effective marketing enables CoCo Vodka to stand out and reach more potential customers.

Andrew Curtin owns Chronicmedia, an advertising agency that helps employers with branding. To scale his agency, Curtin spends the majority of his revenue on contractor fees. Since agencies rely on the expertise of their employees, it makes sense that this firm would require a large freelancer budget.

What can you take from each of these examples? Depending on your industry, location, and even lifestyle preference, startup costs can vary significantly. For example, Convery allocates $90k of revenue to his salary while Wachs takes $50k. That choice comes down to what you want to get from your startup.

Amortize Startup Costs

Entrepreneurs will typically incur costs before launching their venture. For example, you might spend money on real estate or technology to set up a coffee shop. Fortunately, business owners can write off expenses in the year they start the company. In turn, this lowers your taxable income, reducing the amount of taxes you owe.

For example, expenses related to the training of employees fall under startup costs. Assuming you do launch your startup (there’s no deduction if you don’t follow through with your business idea), you can deduct up to $5k in your first year if your expenses stay beneath $50k.

And make sure you get your timeline right: “Client solicitation determines launch date more than revenue generation,” says CPA and business consultant Della Kirkman.

There are three potential first-year deductions:

If your expenses fall below or at $5k, deduct all of it from your taxes in the year you launched the business.

If your expenses fall below or at $50k, deduct $5k and amortize the remainder.

If your expenses exceed $50k but fall below $55k, you can deduct $5k minus any amount over $50k. So, if you spend $50,500 to create your startup, you would deduct $4,500.

After this first-year deduction, the rest of your expenses can be deducted in installments over an 15-year amortization period. Using the above example, if you spent $50k in the first year and deducted $5k, you write off the remaining $45k in even amounts over 180 months.

As always, consult with a tax professional before assuming all your expenditures fall under the umbrella of initial costs. The Internal Revenue Service describes startup costs as both “ordinary and necessary.” For example, research and experimental expenses are not considered deductible startup costs.

Average Startup Costs for a Small Business


If you consider yourself an expert in finance, market research, and launching businesses, you could start a consulting service. At the most basic level, you run the show as a solopreneur. Typical expenses include home-office supplies, license fees, website development, software fees, and marketing. On average, consultants spend ~$12k to get started.

Marketing and Graphic Design

Similar to consultants, marketers and graphic designers could start their own agency or freelance career. To maximize your earnings, consider picking a specialty. For example, you could offer social media advice to makeup companies. Niching down enables you to find better, high-paying clients.

On average, marketing agencies cost ~$22k to start. Alongside typical expenses, marketers have to pay for software, such as graphic design tools, SEO tools such as Ahrefs, social media management systems, and more.

But it’s possible to get lower on your expenses. In fact, you could start a graphic design career with just a website, design software, and your professional network.

Tutoring and Online Courses

Thousands of professionals operate paid courses on learning platforms such as Udemy or LinkedIn Learning.

Most online courses cost between $200 to $10k to create. If you want high-quality videos, you might spend a little extra on video production. On the other hand, if you feel your experience speaks for itself, consider just using your phone’s camera.

If you want to launch a tutoring business without using an external platform, you could take in more profit. However, this strategy also comes with additional expenditures. Hosting a website and paying for advertising adds up — it can cost you $5k to $25k to get going.

Virtual Coaching

From emotional support to career advice, online coaching has blossomed into a thriving industry. Coaches help people from all walks of life handle different hurdles, including university admissions, interviews, public speaking, career development, and even startup creation.

Most coaches will need a website and some social media presence to get started. If you have a network of potential clients, alert them to your services to cut advertising expenses. But software such as appointment booking and email marketing will still cost you. According to one source, you could spend up to $2.4k to get started.


If you have the experience and certification needed to keep books, you can set up your own shop quickly. Some basics include creating a website and paying for marketing. Depending on your scale, it could cost up to $10k to launch a bookkeeping business.

These average startup costs, although helpful, will likely not align with what you end up spending. Remember to conduct market research, identify a niche, and budget accordingly before diving into an industry.

“Every startup is different,” says Arora. “There are unforeseen startup costs that come as you go — that’s something every entrepreneur will experience. You might need to invest a little more in marketing, or you forget to think about this specific thing. Your startup costs will change.”

HubSpot for Startups

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Topics: Startups

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