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Small Business With Low Startup Cost
When starting a business, whether you are familiar with the industry or a newcomer, it can be useful to have an idea of the expected start-up costs.
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Using data from the Census Bureau, researchers estimate average start-up costs in various industries. Most business owners (21%) started their business with less than $5,000. However, start-up costs can exceed $3 million depending on the industry and other start-up factors.
Our findings include the medium and medium costs of starting a business. Averages are often highly skewed because they consider businesses that cost up to millions of dollars. Average cost reflects the midpoint where business costs decrease by 50% and business costs increase by 50%, and is generally lower than average.
Business and company management is one of the most expensive industries to start with. An example of a space company is a company that owns securities or equity interests in other companies, or that oversees and manages the planning and decision-making of other businesses. According to our estimates, the average business in this industry will need approximately $440,740 in seed funding, while the average will need $191,762.
Utilities come in second place. Not many companies report data. There are only 1,097 utility companies in the Census Bureau’s data set. Combined, they used $284 million in funding, equivalent to $265,676 per company. However, the average utility company needs $88,333 to start.
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Food and lodging companies have the third highest average start-up cost. This industry includes family restaurants, casinos, hotels, and more, raising the average. The average new company in this industry costs over $250,000 to start. About two-thirds of companies in this sector require $50,000 or more in seed funding, while medium-sized companies require $93,621.
Construction is the industry with the lowest cost of entry. The average new company only needs $67,349 to start, but 50% of companies start with less than $12,390. It is also one of the largest industries surveyed with approximately 300,000 reporting companies.
Average costs for waste management and repairs as well as management and support services are low. Employment agencies, cleaning services, waste collection and travel companies are examples of companies in this category. The average entrepreneur needs $69,509 to start a business here. Many people start with less money, as the average company in the industry starts with a capital of $12,549.
If starting your own business in one of these industries still seems expensive, if you can only afford a business loan up to $10,000, you still have options. In the construction sector, approximately 47% of companies reported using less than $10,000 in seed funding. Perhaps even less to start a management and support, waste management or remediation business. Almost 31% of these companies started with less than $5,000.
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But $10,000 won’t be enough to get you on the restaurant scene. Less than 10% of lodging and food service businesses start with less than $10,000. Additionally, fewer than a quarter of health and social assistance companies started with less than $10,000 in funding.
Of the 4,651 companies reporting costs, the average amount of capital required to start a business in this industry was $440,740. The total amount spent to start all reporting companies exceeds $2.05 billion.
Industry employees in this sector include accountants, bookkeepers, financial managers, office managers and general managers. They may handle the company’s financial planning or other administrative tasks that favor a third party over internal management.
Initial costs may include office space, accounting or bookkeeping software, liability insurance, marketing, business licenses, and a variety of office supplies, whether purchased or rented. You can start a management business for less than the average cost. The average initial cost is $191,762, but this is the highest average price tag in our study.
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On average, the cost to start a utility business is $265,676, making this industry number one. 2 in our study. However, industry had the lowest response rate, with 1,069 companies reporting costs. The total initially incurred by all reporting utilities was over $284 million.
Electric power, natural gas, steam supply, water supply, and sewage treatment businesses are classified as utility industries. This business relies on expensive machinery as well as experts and skilled workers. Business owners may need to purchase land to access resources such as oil and natural gas. Despite the small number of respondents, the utility industry had the third highest median start-up cost in this study at $88,333.
Industry number 3 sits just below utilities with an average start-up cost of $252,713. The number of respondents reached 221,867 companies, which collectively used more than $56 billion in seed capital.
As mentioned earlier, this segment consists of small businesses such as luxury hotels and restaurants and fast food restaurants. Luxury companies are biased towards average cost, but the average cost of starting a business in the lodging and food service industry is still the second highest at $93,621.
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Location itself is typically a major cost driver for this industry. In addition to space, interior and exterior furnishings, restaurateurs also spend money on marketing, inventory, and staff. Additional fees for hotel owners may include recreational space and food and beverage options.
Not only do these industries have the lowest average start-up costs, but their average costs are near the bottom of the list.
The construction industry had the lowest average start-up cost in this study at $67,349. And while 300,176 companies reported costs, their combined initial costs were only $20.2 billion. The average cost is $12,390, which is second to last.
The start-up costs of a construction business may include raw materials, tools and equipment, labor costs, insurance, permits and licenses required for the project. Costs can be controlled because the size of the project and the requirements of the company affect the overall cost.
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Starting a business in this industry is slightly more expensive than starting a construction one. The average amount needed to start a company is $69,509. Total initial costs for 157,657 respondents totaled $10.9 billion. The median capital required is the lowest at $12,549.
Cleaning, landscaping, security and land maintenance services fall into this category. These businesses tend to have minimal start-up requirements. For example, the initial outlay for a cleaning service typically includes only supplies and labor.
The average amount to start a professional, scientific and technical services company is $72,046. The median was the lowest in our study at $9,952. Initial costs for the 402,654 companies that responded totaled $29 billion.
This sector typically includes accountants, auditors, architects, lawyers, and analysts. Office space is likely to be your biggest upfront cost. For example, attorneys should expect to spend a significant portion of their initial cash on office furniture and supplies, as well as professional licenses and insurance. You can also add equipment such as computers, printers, phones, document scanners, and software.
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To estimate average start-up costs, the researchers used survey data from the US Census Bureau. Researchers find the total amount of capital used to start or acquire a business and divide that amount by the total number of companies reporting financial projections. Financial estimates are given as a range. For the sake of estimation, we assume that businesses use the average range to finance their business.
For example, 295,500 companies reported having spent between $5,000 and $9,999 to start a business. To estimate the total amount of capital used, assume that the average company in that range uses half of $7,500 between $5,000 and $9,999. Companies reporting costs greater than $3 million were excluded from the analysis because they could not be estimated without a fixed range.
To estimate average initial cost, we use the distribution provided by the census. Less than $5,000, $5,000 to $9,999, $10,000 to $24,999, $25,000 to $49,999, $50,000 to $99,999, $100,000 to $249,999, $250,000 to $999,999, $1.9 million to $1 million and $2.9 million. Assuming all companies are evenly distributed across the range, finding the percentage of ways to arrive at the median range gives us a way to derive the median. The biggest reason many entrepreneurial people don’t pursue their business dreams is the huge costs associated with starting a business.
