New Business Tip: Start-up costs to consider as a new business owner

You’re too excited to think about expenses.

And why wouldn’t you be? You’ve just chosen to go into business for yourself, realizing a likely years-long dream. Your opportunity to build a better product or bring a unique service to the public has finally arrived.

Worrying about costs now would only kill momentum. 

Understanding your funding needs is just the beginning. As a new small business owner, choosing the right financing method can help turn your vision into a viable operation. From loans and grants to lines of credit and investors, there are several paths to explore, each with its own requirements and benefits.

What are the best financing options for new small business owners?

• Traditional bank loans – Offer competitive interest rates but often require strong credit and an established business history. May be difficult for brand-new businesses to qualify without collateral or a track record.
• SBA loans – Backed by the U.S. Small Business Administration, these loans are designed specifically to support small businesses with favorable terms and lower down payments. They often require a solid business plan and financial projections.
• Online lenders – Provide fast access to capital with less stringent requirements than traditional banks. They may be more accessible to startups, but interest rates and fees can be higher.
• Business credit cards – A practical option for managing short-term expenses, purchasing inventory, or covering overhead during early operations. Responsible use can also help build business credit.
• Small business grants – Offered through government agencies, nonprofits, and private organizations. These are highly competitive but provide funding that doesn’t require repayment.
• Friends and family loans – Personal connections can sometimes offer funding with more flexible terms. Be sure to formalize the agreement to avoid misunderstandings.
• Angel investors and venture capital – Suitable for startups with high growth potential. These investors provide capital in exchange for equity or a stake in the company.
• Crowdfunding – Platforms like Kickstarter or GoFundMe (a BBB Accredited Business) allow entrepreneurs to raise small amounts of money from a large number of people. This can also double as a marketing tool to generate early interest.

Securing funding is only part of the equation. Once you've identified the right financing option, it's important to understand where that money will go. From legal fees to inventory and marketing, startup costs can add up quickly. Planning for these early expenses helps you stay within budget and avoid unexpected financial strain as your business gets off the ground.

Your journey from stoked to stressed may be short if you aren’t already considering potential start-up expenses. Building a business comes with plenty of costs you may or may not expect. Shopify (a BBB Accredited Business) found that “small business owners spend an average of $40,000 in their first full year of business.”

What are the most common start-up costs for new small businesses?

According to Nerdwallet (a BBB Accredited Business), common start-up expenses new business owners encounter include:

• Equipment ($10,000 - $125,000): At the very least, new businesses need an internet connection and a computer to operate. Other expenses can vary depending on the industry.
• Incorporation fees (less than $300): Filing articles of incorporation or articles of organization with your state is one of the first things new business owners must do.
• Inventory (up to 25% of total budget): Landing on this number starts by determining how much product will be sold over 12 months.
• Office space ($100 - $1,000 per employee each month): This number can fluctuate depending on the type of space needed for your business to operate effectively.
• Utilities (approx. $2 per square foot): Renting or owning office space comes with water, electric, gas, and phone bills.

But again, those are more common, mostly expected costs. Knowing where you might need to allocate your money as you start to set up shop is especially critical for out-of-the-ordinary expenses. We’ve compiled these lesser-known costs to consider as you get your business.

Professional consultants 

Many small business owners plan to do everything themselves, but professional assistance can take some weight off an owner's shoulders. More importantly, financial and legal advice can save time and money and even protect from a worst-case scenario. It makes up for your shortcomings as a new business owner so that your track record in the marketplace stays positive.  

• Accounting experts: While you may be an expert in your new business, that field may not be accounting. Hiring an expert to reconcile business expenses, pay bills on time, and ensure that taxes are collected and paid properly can keep you out of financial hot water.
• Employment Lawyers: Professional advice isn’t limited to the financial realm. If you’re planning to hire employees, consider retaining the services of an employment lawyer or HR consultant. These folks can help keep you abreast of proper wage and employment laws in your state, update you on federal hiring regulations, and make recommendations when an employee becomes a problem.
• HR Consultants: An HR consulting firm can work fine for these needs. Many of the best HR firms have their employment lawyers on staff. Expect to pay regular fees to a bookkeeper and a retainer or hourly costs for HR consulting or an employment lawyer.

Web presence

Going online is not an option for a new business - it's necessary. You need a buttoned-up website that transparently promotes your business’s products, services, operating hours, and contact information.

So, expect to spend money on a quality website host, web design, site maintenance, and online security. If you're taking payments from your website, ensure you have premium security to avoid compromising your customers' data. A strong and trustworthy online presence makes a big first impression, especially when you're new and building your brand.

 Customers visiting your website for the first time may not go there to buy – even if you're an exclusively online business. Savvy shoppers use their computers or smartphones to compare products and services online before purchasing.

This makes your web hosting, web design, and user experience important, especially as small businesses need the brand recognition and larger marketing budgets that regional companies enjoy. Expect to spend more than you anticipated for a premium online user experience. 

Hiring costs

You must hire staff unless you plan to run your business solo or partner with one or two others. Expect to spend money advertising for open positions and background and employment history checks for your top candidates.

An HR consulting firm can take a lot of the busy work of a small business owner's plate and conduct reference checks and the like in compliance with fair hiring practices. Businesses that choose to have pre-employment drug screening (some business licenses require this) should expect higher costs at the outset since you'll be testing multiple employees at once.

Hiring an HR consultant to get you staffed isn't just about expertise in recruiting, interviewing, researching candidates, and filling out employment paperwork properly – although these are all important. These things take a lot of time, and for a new company, time is money. Consider if it's worth hiring a consultant for around $1,000 to take care of initial staffing instead of taking time each day to address the hiring process.

Insurance

Each business has different requirements for insurance coverage. Due to the nature of the business, construction companies, medical practices, and restaurants tend to have higher coverage requirements. Workers’ comp, malpractice, and liability insurance (if a lawsuit-happy customer slips on your floor) are all important. Purchasing the initial premium may be much more than the monthly costs you've worked into your business plan.

In addition to the insurance coverage required for your business license, consider supplemental insurance. Contractors, for instance, can benefit from additional coverage, as potential injuries could cost more than the standard premium. Your business may be small enough that you won't be required to offer health insurance for employees, but if you plan to grow, keep this upfront cost in mind for budgeting in future years.

If you have questions about which coverage options are most appropriate for your company, these resources may offer some clarity.

Final thoughts

Pair your excitement over starting a new business with an expectation that start-up costs are coming, and only sometimes in areas you may expect. Inventory, leasing fees, rent, and general overhead expenses – are all typical for a small business opening. To ensure your success, don't neglect these lesser-known start-up expenses.

Looking for more ways to grow your new small business? Check out the BBB business news feed and the BizHQ.

Visit BBB's new business hub to learn more about starting your own business!

BBB Great West + Pacific contributed to this article.