How Much Does It Cost to Start a Small Business? (2026)

Most US small businesses open on somewhere between $2,000 and $150,000, and the spread is driven almost entirely by whether the business needs a lease, inventory, or licensed equipment. A home-based service business can start for under $5,000; a full-service restaurant rarely opens under $200,000. The number that matters is not the industry average but your own line-item total plus the cash needed to operate until revenue covers costs.

What a Startup Budget Actually Contains

Startup spending splits into three buckets: one-time capital outlays (buildout, equipment, deposits), one-time soft costs (formation, licensing, branding, first insurance premium), and pre-revenue operating costs (rent, payroll, software, marketing) that run until sales cover them. The third bucket is the one founders leave out, and it is usually the largest of the three.

Price each bucket separately, then multiply the third by the number of months you expect to operate below break-even. Twelve months is a realistic default for a consumer business; eighteen is common for anything with a sales cycle or a permitting delay.

How the IRS Treats Money Spent Before You Open

Costs incurred before the business opens are not ordinary deductible expenses. Under Internal Revenue Code section 195 the IRS allows an election to deduct up to $5,000 of startup costs in the year the business begins, with a separate $5,000 election for organizational costs under section 248. That $5,000 is reduced dollar for dollar once total startup costs pass $50,000, and the remainder is amortized over 180 months.

The cash-planning consequence is blunt: a founder who spends $60,000 before opening gets no immediate deduction at all and instead amortizes roughly $333 a month for fifteen years. Equipment follows the depreciation rules instead, so keep those invoices in a separate pile from day one.

• Market research, site scouting, and pre-opening consultant fees are startup costs, not marketing expenses.
• Entity formation, state filing fees, and initial legal drafting are organizational costs under a separate election.
• Equipment, vehicles, and leasehold improvements follow depreciation rules and may qualify for expensing elections whose caps are indexed annually.
• Inventory bought before opening is not deductible until the goods sell, which is why stock-heavy launches feel so cash-hungry.
• An EIN costs nothing when you apply directly with the IRS, so any service charging for one is charging for typing.

                One-time outlay
  Leasehold buildout ................ $28,000
  Equipment and two chairs ......... $12,000
  Security deposit, 2 months ....... $ 6,400
  Formation, licence, signage ...... $ 3,600
  Opening inventory ................ $ 4,000
  Subtotal ......................... $54,000
Monthly pre-revenue burn
  Rent $3,200 + payroll $4,800 ..... $ 8,000
  Insurance, software, utilities ... $ 1,100
  Marketing ........................ $ 1,400
  Subtotal ......................... $10,500
Months planned below break-even .... 9
Operating reserve = 9 x $10,500 .... $94,500
Contingency, 20% of $54,000 ........ $10,800
Total cash to open ................. $159,300
              

How Long the Cash Has to Last

Bureau of Labor Statistics Business Employment Dynamics data has shown for decades that roughly one in five new establishments closes within its first year and about half are gone by year five. Very few of those closures follow a bad idea discovered in month two. They follow cash running out before demand matured, which is a budgeting failure rather than a market one.

1. Build the line-item list from dated quotes rather than industry averages.
2. Split every line into one-time outlay, soft cost, or monthly burn.
3. Choose the number of months you will run below break-even and defend it with a stated sales assumption.
4. Multiply monthly burn by that month count to get the operating reserve.
5. Add 20 percent of one-time outlay as contingency, then compare the total against cash you actually hold.