How to Calculate Startup Costs for a Small Business

Starting a business takes more than a good idea. You also need a clear view of what it will cost to open – and enough cash to cover expenses while revenue builds. A startup budget can help you estimate funding needs, plan cash flow and make informed decisions from day one.

Your costs will depend on your industry, location, business model and hiring plans. Start with the categories below, then add expenses unique to your business.

Budget for business registration, required licenses and permits, and any legal or accounting help you may need including:

• Business registration and entity formation
• Federal, state and local licenses or permits
• Employer Identification Number, if required (free from the IRS)
• Legal, tax and accounting support

Requirements and fees vary, so check with the federal, state and local agencies that oversee your business.

Include the tools and space needed to operate. That may mean equipment, inventory, furniture, computers, payment processing, internet service, security and software subscriptions. Decide what you need at launch and what can wait.

Coverage needs vary by industry and location. Common policies include general liability, commercial property, workers’ compensation, professional liability, cyber liability and business interruption insurance. An insurance professional can help you evaluate options.

Plan for the basics that help customers find and understand your business, such as a website, signage, brand materials and launch advertising. Focus first on the channels most likely to reach your audience.

If you plan to hire, budget beyond wages. Small business payroll costs may also include payroll taxes, benefits, insurance, recruiting, training, equipment and payroll administration. Use current quotes and professional guidance rather than a single rule of thumb. If you’re considering outside support to manage payroll, tax filing or related administrative tasks, you can learn more about payroll solutions available through Paychex. M&T Bank works with Paychex to connect businesses with payroll resources that may fit their needs. Explore payroll solutions from Paychex®.

Unexpected costs and slower-than-planned sales can put pressure on cash flow. Build a reserve based on your fixed expenses, sales cycle, seasonality and risk. You may consider keeping your personal and business costs separate for recordkeeping and tax purposes. Dedicated business checking accounts are designed to accommodate your business as it grows. 

Use a simple, repeatable process. The goal isn’t a perfect forecast – it’s a practical estimate you can update as you learn more.

1.       List every expense. Include launch costs, deposits and the expenses you’ll pay before revenue becomes steady.

2.       Separate one-time and monthly costs. This shows what you need to open and what you need to keep operating.

3.       Get realistic estimates. Review published fees and request quotes from more than one provider when practical.

4.       Project monthly expenses. Consider rent, utilities, payroll, inventory, insurance, debt payments, software and marketing.

5.       Add a cushion. Allow room for delays, price changes and unplanned needs.

6.       Total your funding need. Add one-time costs, projected operating expenses and your reserve, then compare the total with available cash and financing.

One-time costs help you get ready to open. Examples include registration fees, initial equipment, build-out, deposits, opening inventory and website development.

Recurring costs include rent or lease payments, utilities, insurance premiums, employment costs, payroll taxes, marketing and advertising, inventory replenishment, shipping and delivery fees. 

Keep business and personal finances separate, track expenses from the start and compare actual results with your budget regularly. Using a business credit card can help you manage spend, manage recurring payments, and depending on the type of card, earn cash back rewards.

A dedicated business checking account and account alerts can make it easier to monitor balances, review transactions and spot cash-flow pressure early. An M&T Bank business banking specialist can help you discuss account options and other banking support for your plans.