Millions of people dream of starting their own business. It's estimated that 10 out of 100,000 adults in the U.S. launch new companies each month. In the UK, the number of startups reached a new record in 2017 when nearly 660,000 businesses were established. As an entrepreneur, you might wonder, “How do small businesses start?” Most importantly, you want to know how much it costs to set up and run a company. The answers to these questions depend on what niche you're in and what you're trying to accomplish.
TL;DR (Too Long; Didn't Read)
If you're on a tight budget, consider starting an online business. Consultancy services, blogging, affiliate marketing and Skype coaching are all great choices for entrepreneurs who wish to keep the costs low.
Costs of Running a Small Business
Before starting your own business, it's wise to first understand the costs involved. The reason why many new companies fail is that they have insufficient operating funds. It's not enough to raise the money needed to form your company. You must also consider the cost of rent, utilities, equipment, marketing and legal support.
Are you wondering, "How much does it cost to start a small business?" It depends on several factors, including what types of products or services you offer, who your audience is and how you're planning to promote your company. Beware that obtaining business licenses and permits isn't free. No matter what your niche, consider the following costs:
- Rent and utilities
- Legal fees
- Incorporation fees
- Employment taxes
- Workers’ compensation
- Credit card fees
- Bank service charges
- Office furniture and supplies
- Professional consultants
- Repairs and replacements
Depending on your type of business, you may also need to cover delivery charges, travel expenses, software and special fees. For example, a company that sells alcoholic beverages will incur higher costs than one that doesn't sell or serve alcohol. Most states charge additional fees for tobacco, nicotine, alcohol and other similar products.
Consider the incorporation fees too. Let's take EIN numbers, for example. In order to run a business, you need an employer identification number. This unique identifier is needed by any company that hires employees as well as by those operating as a partnership or corporation. The IRS uses it to identify business owners and entrepreneurs who are required to file tax returns. Without an EIN, you may not be able to get loans, apply for credit cards or open a business bank account.
How much does an EIN cost? If you apply for it online on the IRS website, it's free of charge. In case you decide to hire a company that provides incorporation services, you can expect to pay at least $75. Apply for this number after your company is formed.
As a business owner, you may need to hire accountants, lawyers, consultants and other professionals. These services aren't exactly cheap. The average accountant charges about $145 for financial services, $163 for estate planning, $83 for payroll services and up to $1,563 for filling in legal forms. In general, these numbers vary from one state to another and depend largely on your business needs.
How Do Small Businesses Start?
Nine out of 10 startups fail. Some run out of money or get outcompeted. Some don't have a market for their products and services. Others lack funding, lose their focus or face costly legal issues. It's not enough to just have a great idea in order to succeed in business. You must also consider the costs involved as well as any potential challenges that may arise.
Let's say you want to develop a Tinder-like app for HR professionals and job seekers. Even though it's a brilliant idea, the costs shouldn't be overlooked. The technology behind Tinder is more complex than it seems. It uses several programming languages and boasts advanced features, such as custom maps, social media integrations, matching algorithms, in-app purchases and more. The estimated time of completion is around 750 hours for Android app development plus another 375 hours for iOS app development. In the best case scenario, you can expect to pay at least $56,250 for this kind of app. You'll need a project manager, two iOS developers, two Android developers, backend developers, testers and a web designer. Unless you have an in-house team, such a project will cost a small fortune.
While it's true that all businesses start with an idea, you'll need more than that to generate revenue and achieve success. So, what are the requirements to start a business?
First, decide what you want to sell and who your target audience is. For example, you could offer digital marketing services to startups and medium-sized companies. In fact, this is one of the most affordable business ideas. You can work remotely and outsource certain tasks to keep the costs low.
Next, create a business plan and assess your expenses. Include an executive summary, a brief overview of your business and an operation plan. Analyze the market as well as your competitors' strengths and weakness. Think of how you're going to reach your target audience and what marketing strategies you're going to use. Your business plan should also include projected income statements and financial information.
Determine how you're going to fund your business. Are you planning to cover the expenses on your own, reach out to investors or apply for a small business loan? Self-funding is a good choice for internet-based businesses, like web design companies or online consulting services. It also works for small companies that don't require a large investment, such as a nutrition private practice or a local marketing agency.
Once you have a business plan and know your expenses, take the steps needed to register your company. Choose a business name and structure, pick a location and get a tax ID number. Depending on your industry, you may also need to apply for licenses and permits. A business bank account is required too. The legal requirements for starting a business vary among states. A good source of information is the Small Business Administration’s website. Here you will find everything you need to form a company. Make sure you also check your state's website for more specific information on licenses, permits and local regulations. Another option is to look up companies that offer incorporation services.
Low-Cost Business Ideas
Starting your own business doesn't have to be expensive. The internet has made everything a lot easier. Nowadays, anyone can work online and reach customers worldwide without even leaving home. Furthermore, you can promote your business over the web rather than using traditional marketing channels.
If you're looking for the cheapest business to start online, consider offering consulting services. This is a great option for those with specific skills and knowledge in a specific area. Plus, consultants are in high demand across all industries, from marketing and sales to HR and technology.
What are the best online businesses to start other than working as a consultant? It depends on your skills and career goals. Consider the following options:
- Affiliate marketing
- Drop shipping
- Online sales
- eBook publishing
- Digital courses
- App development
- Web design
- Search engine optimization
- Skype coaching
- Technical writing
- Online tech support
- App testing
- Virtual assisting services
For example, if you have strong writing skills, you could publish and sell eBooks online. Amazon, Barnes & Noble, Lulu, Smashwords, Kobo and Blurbs are among the most popular self-publishing platforms. In general, they're free to join and only charge a commission on each book sold. You can also sell ebooks on your website, create and sell digital courses or team up with creative agencies.
Start a Consulting Business
Consulting businesses are the cheapest businesses to start. In 2017, this market reached $63.2 billion in the U.S. alone. Depending on your skills, you can offer consulting services in any area, from career growth and leadership to health and wellness. The best part is that you can work from home and set your own schedule.
For example, if you have a background in advertising, you could guide businesses in developing an effective marketing strategy. Advertising consultants can work with both individuals and companies, from aspiring entrepreneurs to multinational organizations.
Are you passionate about health and fitness? In this case, use your knowledge to help others get active and make smarter food choices. Even though it's not required to have a degree in health, nutrition or a related field, it doesn't hurt either. This will show customers that they can trust your advice.
Another popular option is to work as a career consultant. Your responsibilities may include helping students choose the best professional path, preparing resumes and assisting clients in their job search. Since more and more people are switching careers, you could reach millions of potential customers worldwide.
Online consulting is the cheapest business to start in 2018 for several reasons. First of all, it doesn't require a physical office. You can work from the comfort of your home, day or night. Plus, you don't even need a website to promote your services. With the advent of social media, you can market yourself on LinkedIn, Facebook, Instagram and other online platforms. The key is to build a strong brand and target the right audience.
Launch an Offline Business
Business opportunities abound in the offline environment as well. If you're not particularly interested in blogging, social media or digital marketing, consider starting a traditional business. Depending on your budget, you can either work from home or rent an office.
For instance, you could launch a catering company. You'll be responsible for planning events, creating menus, ordering supplies and transporting meals to the venue. If you're the artistic type, you can create and sell hand-drawn artwork, handmade jewelry or handcrafted gifts. To keep your costs low, work from home in the first few months. As your business grows, consider opening a small local store or lease a space in a shopping center.
In case you prefer a more traditional business, consider launching your own real estate company or travel agency. In either case, it's necessary to obtain special licenses and permits. As a real estate agent, you will need to pay for your education, rent, office supplies, errors and omissions insurance, professional development and more. This isn't exactly the cheapest business to start, but it's still more affordable than opening a retail store or a fitness center, for instance.
You can also start an accounting business, offer cleaning services or work as a financial planner. If you have an eye for design, consider launching an interior decorating business. This is a great choice for those who enjoy working with different fabrics, building things and designing spaces. As an interior decorator, you will help people choose the right furnishings and accessories for their home, make structural changes and transform their living space.
There are many other business opportunities available. From food delivery and online tutoring to pet grooming, the possibilities are endless. Plus, there is no need to spend a fortune to get started.
Make sure you have a solid business plan and a marketing strategy in place. Check the laws in your state and obtain any licenses that may be required. Assess the market and get to know your audience. Research your competitors and then come up with better products and services.
- Organisation for Economic Co-operation and Development: Entrepreneurship at a Glance: 2018 Highlights
- Ewing Marion Kauffman Foundation: The Kauffman Index Startup Activity National Trends
- U.S. Small Business Administration: What Is an EIN and Why Is It Important?
- CPA Practice Advisor: Survey Shows Average Fees for Accounting & Tax Firm Services for 2017
- Due: 8 Hidden Costs of Starting and Running a Business
- Fortune: Why Startups Fail, According to Their Founders
- Cleveroad: How Much Does It Cost to Develop an App Like Tinder?
- Statista: Size of the Consulting Market in the United States from 2015 to 2017 (in billion U.S. dollars)