Data from the Small Business Administration (SBA) Office of Advocacy confirm what many small-business owners already know from personal experience: Most small businesses are started on a shoestring budget. Based on 2007 Census data, 70 percent of entrepreneurs who started or acquired firms reported using less than $25,000 in startup capital. A whopping 44 percent started their businesses with less than $5,000 in the bank.
The average startup capital across industries was just under $29,000. The actual amount invested of course varies widely, but the figures below, which were extrapolated from the data provided by the SBA Office of Advocacy, should give you a general idea of startup costs in your industry.
Food Service: Average Startup $125,000
In the category the Census calls “accommodation and food services,” which includes restaurants and hotels, only 13 percent of business owners started up with less than $5,000, while 20 percent spent between $100,000 and $250,000. Close to 20 percent spent more than $250,000 to start their enterprises.
These figures closely dovetail with other surveys. Restaurants have some of the best-documented startup costs of any sector. Buying a restaurant franchise costs between $25,000 and $50,000 on the low end, ranging up to well over $1 million for some of the big name fast food chains. The average cost to open a restaurant in a RestaurantOwner.com survey was $498,888 (based on 700 respondents; the Census data included over 700,000 businesses in this category).
That said, there are many less expensive ways to get a start in food service. A food truck will set you back between $30,000 and $200,000, depending on whether you buy a new or used truck and how many bells and whistles you add. For brick-and-mortar restaurants, choosing a space that was previously a restaurant can cut costs in half, since most of the expense of opening a dining establishment is in building out the space and buying fixtures and equipment. Many restaurateurs are trying out their concepts first in a pop-up space to keep costs low.
Service Businesses: Average Startup $14,000 to $18,000
The lawyers, accountants, architects, photographers, graphic designers, consultants, and veterinarians grouped together in the Census data under “professional, scientific, and technical services” are the largest group — about 14 percent of the total, or 3.8 million startups.
This category includes the closely watched tech sector. While news reports are full of stories of venture capital funding for tech startups and billion-dollar purchases by tech giants, the majority of tech entrepreneurs are like the majority of all entrepreneurs: bootstrapping their fledgling enterprises with a little bit of cash and a lot of hard work. Most of these professionals reported opening their businesses with little capital: over 54 percent needed less than $5,000 and fewer than 13 percent spent $50,000 or more; the average is $18,000.
One cost not included in this data is the price of training and education needed before hanging out your shingle in one of these professions, which can run well over $100,000.
Another group of service providers, classified as “other services (except public administration)” is a patchwork quilt of everything from grant writers and dry cleaners to morticians and dog washers. Although close to half of these entrepreneurs opened their establishments for under $5,000, almost 25 percent spent more than $25,000, with an average of $14,000.
Construction: Average Startup $14,000
The second most popular category for new-business startups at just under 13 percent of the total, construction entrepreneurs followed the general trend of bootstrapping with little or no startup capital. The fact that close to half reported starting their businesses with less than $5,000 may reflect the large number of self-employed handypersons in this category, whose micro businesses don’t require a large outlay of initial cash.
Retail: Average Startup $32,000
Close to 42 percent of retail businesses reported starting up for less that $5,000. In this sector, recent trends in pop-up locations and online retail may be bringing the price of entry down. Anecdotal accounts of retail startup costs, even for businesses with low initial inventory costs such as consignment shops, put the price tag for opening a store at right around the average found in the Census data.
Startup Costs for Other Industries
The data include a list of average startup costs for a variety of other industries as well, including:
• $27,000 to open a healthcare business. This category includes everything from doctor’s offices to home health aides.
• $75,000 to get started in real estate or rentals of real property or equipment.
• $11,000 to go into business providing administrative or janitorial support for other businesses.
• $16,000 to enter the transportation and warehousing sector, which covers a range of businesses, from independent truckers to warehouse operations, as well as transporting passengers.
• $16,000 to set yourself up in arts and entertainment, including performance venues and camps and recreational facilities.
• $52,000 to start a finance or insurance business.
The Bottom Line
The averages cited here may give you a rough idea of what to expect in different sectors of the economy. Within each industry classification, there can be great variation in actual startup costs. To get a clear picture of the capital needed to start your business, your best bet is to research the costs specific to your location and type of business by talking to the owners of similar businesses, working with a business mentor, and pricing out the specific items you will need in order to open your doors.