How to calculate business startup costs

Every startup has a big vision, but turning that vision into reality takes money—and not just the “raise a round and grow” kind. Startup costs shape your business’s financial foundation before you’ve earned your first dollar. They influence every decision to come, from how fast you can grow to who you can hire. 

Despite how common big early expenses are for startups, many founders and business owners underestimate the initial costs. Planning your budget upfront will set you up to scale with clarity and confidence. 

This guide will walk you through the most common startup costs, how to calculate them realistically, and smart ways to keep your startup budget lean without cutting corners. 

10 common startup costs to expect

Every startup takes money to open. Some costs are obvious, like a business license, while others you may not have thought about, like water cooler refills for the office. These incurred expenses make up the real cost of starting a business. 

Here’s a breakdown of the most common startup costs founders face, whether you’re launching from your home office or leasing an office for a team. 

1. Business formation fees

Before doing anything else, you’ll need to register your new business. That might mean filing articles of incorporation to establish a corporation or setting up a limited liability company (LLC). The structure you choose impacts future tax obligations, so this is worth getting right from the beginning. It can vary significantly depending on where you’re located, but for a majority of the United States, the initial fee for this process is under $300. 

2. Market research and business planning

Good ideas still need validation. Whether you hire a market research firm or handle the analysis yourself, doing your homework ahead of time helps define your product-market fit. Costs can range from free (if DIY) to over $100,000 for expert support. If you’re building a detailed business plan, expect additional costs for financial modeling or consultant insights.

3. Equipment and technology

Almost every business needs equipment, whether it’s a basic computer and webcam or commercial-grade ovens and tools. Equipment costs vary widely depending on your setup. If you’re planning on working in person, don’t forget to budget for office supplies like furniture, printers, and basic stationery. You’ll want to decide whether leasing or buying these assets makes more sense for your budget—and return to the question as your business grows.

4. Inventory and supplies

For businesses selling products, inventory is non-negotiable. This can eat up a large percentage of your startup’s total budget. Stocking too much too soon ties up capital, but running out means missed sales. Seasonal businesses in particular need to tread carefully, as timing and volume become harder to predict when your entire revenue hinges on a few months.

5. Licenses, permits, and insurance

From local business licenses to industry-specific permits, regulatory costs can add up quickly. And you’ll need insurance to protect your team and your customers. Policy costs depend on your business model and risk level, but no matter your situation, skipping this step leaves you exposed to lawsuits or property damage that could drain your startup budget and then some. 

6. Office space or remote setup

Office costs vary widely depending on location, layout, and lease terms. Some startups choose traditional leases, while others opt for coworking spaces or go fully remote. Remote teams still need budget room for home office stipends and collaboration tools. Whatever setup you choose, it's worth considering the long-term cost tradeoffs. 

7. Employee salaries and benefits

Compensation goes far beyond base pay. It includes benefits and other employer costs that can often add a significant percentage to your total spend per employee. For startups building global teams, having a solid global compensation strategy is crucial for attracting top talent while managing costs effectively.

Salaries are one of the biggest startup expenses if you're building a team before your business starts generating steady revenue. If you're scaling quickly or hiring internationally, working with an employer of record (EOR) for startups can simplify hiring and payroll in new markets. 

8. Marketing and promotion

There’s no one-size-fits-all marketing budget. Some startups go lean and rely on organic growth, while others invest heavily in advertising and brand visibility upfront. Think about your audience and how you’ll reach them, whether that’s ads from social media influencers or roadside billboards, then build your spending plan around it. 

9. Professional legal and accounting services

Of all the steps involved in starting a business, legal and finance tasks shouldn’t be DIY unless you have the necessary expertise. You’ll likely need help registering your business, setting up contracts, and filing taxes. These costs can vary depending on your business type and location, but planning ahead for these services can save you time and headaches. 

Experienced legal support is especially worth the investment if you're creating employment contracts with equity or navigating early-stage ownership structures. 

10. Website and software tools

Most businesses need a website, even if it's just a simple one to start. There are many website builders that have low entry costs if you’re willing to build it yourself, or you could hire someone to do it for you. Websites aren’t a one-and-done expense, though. Ongoing costs for communication, scheduling, project management, and customer support need to be in your budget. Start with free or low-cost tools and upgrade as needed. 

How to calculate startup costs in 5 steps

So, how much does it cost to open a business? The truth is, there’s no universal number. Some businesses launch with a few thousand dollars and a laptop. Others need months of planning, research, and upfront investments. What matters most is creating a startup budget that reflects your actual needs, in a way that’s practical and flexible enough to grow with you. 

1. List all one-time and recurring expenses

Start by writing down every business expense you’ll incur. Separate one-time startup costs (like incorporation or equipment purchases) from recurring expenses like rent, salaries, and software subscriptions. This distinction helps you see what’s needed to launch versus what's needed to operate month to month, and budget for both. 

2. Mark essential vs. optimal items

Identify which expenses are critical for getting your business off the ground and which ones can wait. For example, a professionally designed logo might be nice to have, but it’s probably not as urgent as your point-of-sale system or business license. 

3. Research typical costs in your industry

Ground your expectations using benchmarks. That could mean reaching out to vendors or talking to other founders. The U.S. Small Business Administration (SBA), industry forums, and even local chambers of commerce can help you estimate realistic numbers for your region and business type. 

4. Add a contingency buffer

Whatever final numbers you come up with, add a buffer of 10–20% of your budget to account for unexpected expenses. You should also plan to have at least six months of operating expenses ready if you don’t expect immediate revenue.

5. Use a simple budgeting template

You don’t need complex financial software when you’re starting up. A spreadsheet or basic financial model can help you organize categories and spot gaps. Look for templates designed for startups or build one tailored to your business model.

How to save on startup costs 

The following strategies can help you spend smarter without stalling growth:

• Start small and focus on essentials: Invest in what directly supports your product or service and operations. Hold off on perks, upgrades, and non-critical hires until the core operations are running smoothly.
• Choose virtual offices or coworking spaces: Skip long-term leases early on. Coworking spaces offer more flexibility, and going fully remote cuts down on overhead.
• Use freemium or open-source software: Many tools for project management, customer relationship management (CRM), design, and accounting offer free plans. Stick to those until your needs (or revenue) grow.
• Tap into remote and global talent: Hiring remote workers outside your local market can reduce costs and widen your talent pool. Starting by building departments with freelancers and contractors adds budget flexibility without long-term commitments.
• Buy secondhand or lease equipment: New gear isn’t always necessary. Find deals on refurbished laptops and leased hardware to free up cash for growth.

Expand globally without overspending through Oyster

Smart budgeting is about making choices that support sustainable growth from day one. 

One of the biggest impacts? How and where you build your team. 

Hiring global talent gives startups access to top candidates so you can make a name for yourself as soon as possible. It also allows you to stay agile as you scale, skipping the heavy overhead of physical offices. 

Global hiring comes with complex international law that takes hours of your time to navigate. That’s where Oyster comes in. With EOR services and strategic partnership solutions, Oyster makes it simple to hire across borders without setting up local entities. Compliantly onboard talent and eliminate administrative headaches so you can focus on growing your business.

Try Oyster’s EOR services to build your ideal startup from the get-go.

FAQ

How much money does it cost to start a business?

Costs can range from under $1,000 USD for online solopreneurs to hundreds of thousands for brick-and-mortar startups. What matters most is building a budget that reflects your business model and goal. Do your research ahead of time to find out how much it costs to get off the ground.

How do I estimate startup costs accurately?

Start by listing all expected one-time and recurring expenses, then research benchmarks in your industry. This might include asking founders of competing businesses in your local market how much it cost them. Don’t forget to add a contingency buffer, usually around 10–20%, to cover unexpected expenses. And stay organized using a startup-specific budgeting template or financial model to start off on the right foot.

Are startup costs tax-deductible?

In many cases, yes. The IRS allows businesses to deduct up to $5,000 of startup costs against your taxable income in the first year of business. However, this deduction starts to phase out once your total startup costs exceed $50,000, and disappears entirely over $55,000. If you’ve spent more than $5,000, you may need to amortize your costs, spreading the deduction across multiple tax years. 

Understanding amortization rules can help you plan your tax strategy more effectively. For guidance, talk to a tax advisor about nitty-gritty details of your situation.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.