How Much Does It Cost to Start a Small Business?

How much does it cost to start your own business?

Of course, the answer depends on your business model and your chosen industry. However, the Ewing Marion Kauffman Foundation estimated in 2009 that the average cost was just over $30,000.

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Many small businesses, particularly freelance, online and home-based businesses, come in a lot lower than this, often needing only a few thousand to get started.

But averages aside, what can you do to calculate your specific start-up costs?

Understand the types of costs a start-up will incur

Before you do any estimating, it's important to understand how start-up costs are categorized. All start-up costs (meaning costs in the period before you start generating income) include two kinds of spending: expenses and assets.

• Expenses. These are the costs for operations that occur during the start-up phase. They include tax-deductible costs such as travel, payroll, rent, office supplies, marketing materials, etc. They also include initial organizational costs like legal fees and state incorporation fees. You can write off up to $5,000 in business start-up costs and an additional $5,000 in organizational expenses in the year that you start a business.

• Assets. Also known as capital expenses or expenditures, these are the one-time costs of buying assets such as inventory, property, vehicles or equipment as well as making upfront payments for security deposits. These start-up assets don't usually qualify for deduction, but some can be written off through depreciation at tax time.

You can read more about the difference between these two categories and why it's important to keep good expense records in the Small Business Administration's Small Business Expenses and Tax Deduction Guide.

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