What are Startup Costs?

When launching a new business, you’ll likely incur a myriad of expenses. Whether your business sells a product or service – to consumers or other businesses – you’ll need to purchase non-recurring purchase goods to get it up and running. Known as startup costs, they are vital to launching a new business. But failure to plan ahead for these expenses could result in financial hardship for your business during those critically important first few months.

What Are Startup Costs?

Startup Costs Explained

Also known as preliminary expenses, startup costs are all non-recurring expenses associated with launching a business. The key thing to remember is that startup costs are non-recurring, meaning you don’t purchase them multiple times on a prearranged basis (weekly, monthly, quarterly, etc.).

Common examples of startup costs include the following:

• Business license
• Permits
• Equipment
• Advertising and marketing
• Inventory
• Market research activities
• Office or building space
• Borrowing fees

How to Save Money on Startup Costs

There are ways to save money when launching a new business. Depending on what type of business you intend to run, you may be able to purchase used equipment instead of new equipment. Construction companies, for example, can purchase used equipment at a fraction the price of new equipment.

Other ways to save money on startup include comparing prices from multiple providers, purchasing only the minimum amount of inventory needed, and choosing free or low-cost advertising and marketing channels.

How Much Can I Expect to Pay in Startup Costs?

Being that no two businesses are the same, startup costs vary depending on a number of different factors. A report published by the Kauffman Foundation found that businesses in the United States paid a little over $30,000 in startup costs in 2009. A separate report published by the Small Business Administration (SBA) found that micro-businesses incur just $3,000 or less in startup costs.

As you can see, startup costs are closely associated with a business’s size. The larger your business, the more money you can expect to pay in startup costs.

Startup Costs Are Tax Deductible

While you can’t avoid costs when launching a new business, you can typically deduct them from your taxes. The Internal Revenue Service (IRS) allows business owners to deduct startup from their taxes. According to the IRS, such deductions are classified as either “creating a business” or “investigating the creation or acquisition of a business.”

You should consult with a tax professional for more information, but you can rest assured knowing that startup expenses are generally tax deductible.

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