This Is How Much Capital You Really Need to Start Your Small Business

There’s not an easy answer for how much money it takes to start a small business. If you want to start a simple home-based business, you might only need a few hundred dollars. If you want to open a brick-and-mortar retail storefront or restaurant, you’re likely going to need tens of thousands of dollars of upfront capital to pay for rent, inventory, employee expenses, and more.

Let’s look at a few examples of average start-up capital needed to start a small business — and how you can improve your chances of success.

Home-based professional services business: $1,000 (or less)

If you have professional skills that can be used to start a business as a consultant or freelancer, congratulations: you have a chance to start one of the lowest-cost businesses of all. If you start a professional services business, you might need up to $1,000 of actual cash to get your business off the ground.

A few examples of start-up costs for a home-based professional services business include:

• Website builder
• Business cards
• Forming a Limited Liability Company (LLC) or other legal business entity
• Advertising and marketing expenses

The biggest “cost” of starting a business as a freelancer or consultant is mostly the value of your time. You’ll need to burn the midnight oil (or wake up early) to introduce yourself to new clients, promote your services on social media, and otherwise get known by the people who can hire you. But being a freelancer or consultant is one of the best ways to start a business without a big checking account balance.

Online store: $40,000

You don’t always need a lot of money to start an online store. But if you want to make a serious impact with attractive inventory that people want to buy, and with powerful search engine marketing that can drive traffic to your site, you need to spend some cash.

A survey from Shopify found that the average online small business owner spends about $40,000 in the first year. Ideally, you can start making sales and earning revenue quickly so you can cover those costs. But $40,000 is a reasonable average estimate for the cost of starting an online small business.

Franchise: $20,000-$50,000

Sometimes the fastest way to start a business is to buy into an existing business by opening a franchise. When you buy a franchise, you get the support and marketing muscle of a larger brand that can help you make money. The classic phrase to explain the advantage of franchising is that it feels like “being in business for yourself, but not by yourself.”

Opening a franchise is not free, of course. You have to pay a franchise fee to the larger company as a one-time investment to get your business started. According to the International Franchise Professionals Group, the average cost of a franchise fee can range from $20,000-$50,000 — and that’s just the franchise fee, not counting other start-up costs you might need, like real estate and inventory.

Some of the most famous franchise brands, like McDonald’s, require a lot more money than that. For example, McDonald’s requires its new franchisees to have at least $500,000 of non-borrowed personal resources before you can be considered to open a franchise.

But if you believe in the company’s brand, if you can work within established systems and processes, and if you can hustle to find new customers and build your franchise’s presence in your local market, becoming a franchisee can be a cost-effective way to become an entrepreneur.

Food truck: $40,000-$150,000

Food trucks have become a big trend in America’s culinary scene, and unlike the costs of starting a larger restaurant at a fixed location, they can offer a lower-price way to get into the food business. Data from Square shows that average food truck start-up costs might range from $40,000 to $150,000.

One advantage of opening a food truck is that you’re not dependent on one location; you can go where the people are. And food trucks are made for social media — you can build an audience with photogenic, memorable food, and a colorful truck that’s fun to pose with for selfies. If you can find a winning concept with food that people love to eat, you might find that opening a food truck is a cost-effective business idea.

Restaurant: $175,500-$750,500

Opening a restaurant is many people’s dream start-up idea: What could be more fun than creating a unique hospitality environment, where people can gather for delicious food and happy memories? But although restaurants can be cool and glamorous, they’re not cheap.

A survey from RestaurantOwner.com found that the average start-up costs for a restaurant range from $175,500 to $750,500. Restaurants have lots of costs: food, other inventory, real estate leases, construction, employee wages, utilities, license and permit fees, and more. That all adds up to a median start-up cost per seat of $3,586 — or $14,344 for a four-seat restaurant table. Starting a restaurant can be risky, and the profits are not often huge: the RestaurantOwner.com survey found that the typical restaurant’s (median) profit margin was 5.5%.

Bottom line

Starting a business doesn’t have to be expensive, but it’s important to know just how much it can cost. Many entrepreneurs fund their startups with credit cards or personal funds. Until you’re ready to apply for a small business loan, you might need to “bootstrap” your business in this way.

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