How Much Start-Up Equipment Costs by Industry
Very few businesses can be started without funding; in fact, sometimes startup costs are the only thing standing between an entrepreneur and the vision they have for opening a business. Depending on what type of business you want to open, startup costs could range from a few thousand to hundreds of thousands – or even more.
Data provided by the U.S. Small Business Administration (SBA) Office of Advocacy shows that in 2007 (the latest census data available) seven out of 10 U.S. entrepreneurs started their business with less than $25,000 in capital, and more than four in 10 did so with less than $5,000 in working capital. Across all industries, the average cost to start a business in 2007 was $29,000.
What Did Others In My Industry Pay for Start-Up Equipment Costs?
Of the industries listed below, starting a business in the hotel or restaurant industry is by far the most expensive. According to 2007 census data, average startup costs for the following industries were:
- $125,000 – Restaurants and hotels
- $75,000 – Real estate and rentals (property or equipment)
- $52,000 – Finance or insurance
- $32,000 – Retail
- $27,000 – Health care
- $16,000 – Transportation and warehousing
- $16,000 – Arts and entertainment
- $14-18,000 – Service businesses (encompasses a wide variety of personal, professional, scientific and technical businesses)
- $14,000 – Construction
- $11,000 – Administrative services or janitorial support for other businesses
Obviously, there are many factors that can affect startup costs. For instance, while the average cost of opening a full-scale restaurant establishment is about $500,000, opening a food truck could cost as little as $30,000 (the average cost to open a food truck ranges from $30,000 to $200,000). In some industries, the cost to buy in to a franchise represents one of the largest startup costs an entrepreneur will need to raise; in others, property and equipment costs will be the most cost-prohibitive.
Although it is generally less expensive to start a business from scratch, buying an existing business is also an option. While the data below (published by bizbuysell.com) would seem considerably higher than the averages listed above, bear in mind that depending on the actual startup costs your business vision would entail, buying an existing business could be less expensive than building a new business from the ground up, and has the added advantage (in most cases) of bringing an existing customer base to the table.
Costs to buy an existing business in 2014 by industry:
- $125,000-$150,000 – Restaurants, bars and other eating and drinking establishments
- $118,000-$395,000 – Liquor, convenience, supermarket and other food stores
- $240,000 – Gas stations
- $275,000 to more than $1.6 million – Manufacturing businesses
- $237,000-$920,000 – Construction (building, heavy and special trades)
- $135,000-$420,000 – Wholesale goods
- $175,000 – Dry cleaning and laundry
- $280,000 – Health care (including medical and dental)
- $94,800 – Beauty Salons and Barber Shops
- $265,000 – Auto parts, repair and service
- $120,000-$300,000 – Internet B2B, B2C and other IT companies
- $200,000 to more than $1.6 million – Agriculture, communications and utilities
How to Calculate Start-Up Equipment Costs
When you consider the long list of potential costs that might go into starting a business, calculating startup costs might seem complicated. However, this Starting Costs Estimator Calculator provided by Entrepreneur.com takes a lot of the guesswork out of the process. As you estimate the amount of financing you may need for your startup, here are some of the questions you will need to answer.
- Where will your business be located?
A home-based business may entail no additional cost for facilities; however, if space must be purchased or rented, that cost should go on the list of startup costs, as well as any associated dues, utilities, facility service charges (trash, cleaning, etc.), and the cost of what it will take to ensure internet, Wi-Fi, cable or satellite television or any other capabilities your place of business will need.
- How will you get the word out?
Long before your startup opens its doors, marketing can be at work creating demand and interest in your business. In addition to traditional marketing costs such as the cost of stationary, flyers, business cards and so on, your startup costs may entail website development, web hosting, buying a domain, trademarking your name and logo and completing SEO tasks like ensuring your website is indexed, your business is listed in appropriate directories, etc. More than six out of 10 small business owners said they wish they had spent more time and money on marketing when they were first starting out, so be sure that you don’t overlook this critical component of business.
- What will you sell?
If your company sells intangibles such as knowledge or business services, buying inventory may not be one of your startup costs. However, for most retail businesses, startup inventory and supplies costs may be extensive.
- What equipment do you need?
For a brick-and-mortar business, equipment and furnishings can represent a significant portion of startup costs. Most home-based and professional service businesses require investment in equipment, computers and furnishings as well.
- Who’s got your back?
An often-overlooked area when it comes to startup costs are things like business insurance, property insurance, liability insurance, sales and income tax requirements and bank fees. As you near the grand opening date of your new business, take time to consult with a professional business or finance consultant who can walk you through a checklist of operational expenses you may have overlooked.
The money you spend to make sure you run your business the right way from the beginning could be one of the best investments you make. In fact, 29 percent of small business owners say if they could go back and do it all over again, they would hire an accountant and almost half said they would have found a mentor.
Where Did Other Entrepreneurs Obtain Startup Funding?
According to 2012 census data, the vast majority of U.S. entrepreneurs use their own bank accounts (about 75 percent) and credit cards (more than 10 percent) to fund their startups. An Entrepreneur.com article notes that of the more than $530 billions spent to launch businesses each year:
- $185.5 billion comes from personal savings, assets and credit cards
- $60 billion comes from friends and family
- $22 billion is raised as venture capital
- $20 billion comes from angel investors
- $14 billion comes from banks
- $5.1 billion is raised through crowdfunding
Launching a new business is one of the most exciting things anyone can do in their lifetime. Those people who successfully take their business concept from dream to startup reality are the ones that change the landscape of the world we live in.
Once your business has launched, Kabbage would love to be part of its story. New businesses sometimes fail to thrive for the simple reason that growth takes time. Find out how our business loans could help you get through a slow season or finance the next phase of growth for your young business. From a line of credit to equipment financing or a business loan, our financing tools have helped thousands of business owners grow to the next level.
What about you? Tweet us at @KabbageInc and tell us what type of business you own and what your startup costs were – were they what you expected at the time? We would love to hear from you.