3 Major Factors That Affect Business Startup Costs

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If there’s one thing all businesses have in common, it’s the fact that they require startup capital. Whether you’re planning to start a home-based food kitchen, a brick-and-mortar clothing store, or a Silicon Valley tech startup, you must establish how much money you’ll need to get started and find ways to raise it.

However, while some entrepreneurs only need a few thousand dollars, others need millions just to get their business ideas off the ground. This begs the question: what affects business startup costs?

In this article, we’re delving into some of the major factors that will influence how much startup capital you’ll need to have.

1. The Nature of the Product/Service

Every business is founded to offer a product or service. The nature of your product or service will have a direct impact on your startup costs.

Let’s take an example of two businesses:

One is a pet sitting service and another makes pet food. The capital requirements for these businesses will vary widely, with the pet sitting service having a lower cost.

You can start a pet sitting service if you have enough space in your home. It’s also a job you can do if you’re passionate about pets, so you don’t have to incur an extra cost hiring a pet sitter.

On the other hand, the business that makes pet food will incur a lot more money just to get the product ready. Money will go into research, purchasing the cooking equipment, and possibly hiring a few workers.

Startup costs can be astronomical if you plan to build and sell a high-cost product, say cars or rockets.

2. Location/Premises

You can start a home-based business, an online-only business, or a traditional brick-and-mortar business with online operations.

In this context, the location of your business will greatly influence your startup costs. Home-based businesses are widely known to have lower startup costs because owners don’t have to lease space – and there are tax benefits to running a home business.

Online businesses can be just as cheap. Setting up a simple business website won’t cost more than a few hundred dollars. Selling online on ecommerce platforms like Amazon is even cheaper.

Brick-and-mortar businesses have the highest cost as far as business premises is concerned. In 2020, the average cost per square foot of office space was $18. So if you need 2000 sq. ft., you need to spend about $3,600 every month on rent!

3. Labor

While many small businesses start out as one-man bands, there are those that need to recruit employees right away. Labor costs will significantly increase your startup expenses. What’s more, the cost of labor is recurrent, since you have to pay salaries on an ongoing basis.

Keep in mind that proper management of startup finances is key to sustainability and growth. It’s prudent to hire an accountant early on; a professional who can develop financial forecasts, check and catch duplicate row labels in financial statements, and whatnot.

Know Your Business Startup Costs

Having a clear picture of your business startup costs is essential. You don’t want to start a business and run out of capital just because you underestimated the amount you’d need. With this guide, you now know some of the factors that will determine your capital requirements.

Browse our blog for more startup tips and advice.

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