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Start Up Costs: How Much it is to Start A New Business
According to Entrepreneur magazine, it costs on average somewhere between $2,000 – $10,000 to start a new service business. It’s important to note that this figure accounts for buying a used van or truck, and keeping your equipment costs to a minimum. If this isn’t the case however, there’s very real potential for your business to cost as much as $100,000 to start if you’re buying everything up front and new.
Start up costs can vary dramatically depending on whether you want to buy into a franchise, or buy out a business, or start a business from scratch. Typically, franchising and buying out a business will lump together the majority of expenses saving you time, even if the upfront investment is much higher. Starting out from scratch, meanwhile, is the cheapest option.
Buying A Franchise
If you decide to buy a franchise instead of starting a business from scratch, there’s normally an upfront fee ($15,000-$80,000) that will allow you to purchase their rights and reputation as well as marketing materials, equipment, training, and support. Then, you’ll need to pay the franchise a percentage of your annual revenue each year (5-8%). You can search for franchise opportunities here or here.
How to Buy an Existing Business
Buying another business comes with certain advantages: you won’t need to buy inventory or equipment or hire anyone starting out and the business has an established customer base and brand recognition. However, it’s vital to determine the business’ health before making a commitment to understand why the owner decided to sell and whether you want to take on its existing issues. The business may have existing liens, insurance disputes, or be losing market to competitors.
Costs can also vary dramatically depending on how much the business is able to provide ($50,000-$700,000+). With some businesses, you may only get equipment and a list of customers from a home-based business. With others, it may come with an office space, fleet of vehicles, furniture, equipment, employees, and even training.
To find businesses looking to sell, you can try:
- Business Brokers, who will have lists of current businesses for sale in every industry
- Websites like bizbuysell.com, bizquest.com, sunbeltnetwork.com, businessesforsale.com, or dealstream.com.
- Publishing an ad to advertise you’re looking to buy
- Or even by contacting owners directly – many owners may be ready to sell but don’t want to advertise it and risk losing customers or employees.
Starting From Scratch
Starting from scratch may seem like a treacherous road to take, but it can also be the most financially friendly option. Do keep in mind that starting a business will be time consuming, and has a large risk of failure. According to the U.S. BLS (Bureau of Labor Statistics) approximately 20% of new businesses fail in their first year.
Some of your basic expenses for starting up will likely include:
You may already have a truck or van on hand that you can utilize for transportation of your tools and equipment. But, if this isn’t the case, a vehicle is one of the first purchases you’ll need to make for your new business. To acquire a vehicle, you have two options to choose from: buy or lease. Leasing a vehicle makes sense if you plan to use it for less than three years, but you may not be able to add vehicle wraps or decals to promote your business. Just use magnetic options instead! If you plan on either making changes to the interior of your vehicle, adding a branded wrap or decal, or plan on using the vehicle for longer than three years, it makes more sense to buy a vehicle that’s either used or brand new. You can either search for local resellers, dealerships, or utilize an online car purchasing service like Carvana.
Tools and Supplies
Depending on the type of work you do, you may already have the majority of tools, supplies, and safety equipment you need to start your other business. Otherwise, this investment depends heavily on the type of work you do.
Options for obtaining tools and equipment cheap include:
- Bid On Equipment
- Surplus sales and auctions, including state-wide ones
- Facebook Marketplace
- Trade-specific Forums, like Contractor Talk and Facebook groups
However, there are certain situations where you should avoid purchasing tools used. Batteries have a limited life span, it’s difficult to guarantee repaired/rewired tools were fixed correctly, and levels and squares can dent and misalign over time.
The odds are pretty good that you’ve set up a bank account before, but this time, you’ll need to set up a separate account for your business! This is a very important step, as it will help you in the future should you run into issues with the IRS. There are also opportunities to get sign on bonuses, we’d recommend visiting this website to see what your options are.
And if you still have yet to set up a bank account, we’re not sure what to tell you.
License & Registration Fees
Odds are you already have your trade license and have taken the necessary exams and paid the necessary fees. So, you’ll just need to purchase a business license, get any regulatory permits and approvals, take and pay for any business license examples, and pay the licensing fee. This varies dramatically across states, counties, and cities but typically costs anywhere from $50-$500 with the average being somewhere in the $75 range.
At minimum to get started, you need a logo, website with a custom domain and hosting, and business cards. While you can create a logo from scratch yourself short term, you’ll need a professional to design it if you intend to use it on marketing materials so that it looks professional. Additionally, you’ll need business cards and a website with hosting and a domain name, and business cards.
Office space rentals in the US average anywhere from $1 per square foot up to over $6 per square foot per month and can be leased or bought. You can calculate how much space you need with this calculator. While not required, an office can be ideal for larger teams with equipment and supply storage needs and gives your team access to business level infrastructure, like office equipment and high speed internet.
Overhead Costs/Monthly Expenses
Overhead costs and monthly expenses are an important factor to consider when you’re just starting to set up your financials. Typical overhead costs will include employee wages, insurance, gasoline and vehicle costs, business software expenses, business insurance, rent and utilities. This can also include marketing expenses such as yard signs, direct mailing, equipment stickers, and company branded gear.
Now that you know all the costs that go into starting a business, you can begin mapping out your priorities. What expenses can wait? Are there any tools you can get used, or highly discounted? What funding do you need? Turn to our extensive guide on business funding to see what options are available, including free business grants and our business expense template to track your start-up costs and month over month expenses.
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