How Much Does It Cost To Start A Home-Based Business?

How much money does it cost to start a home-based business? While startup costs vary on an industry basis, here's a look at what to expect.

Starting a home-based business is a dream for many; you’ll have the freedom to work from home, practically unlimited income potential, and depending on your area of expertise, you could do the type of work you’re most passionate about doing. However, startup costs can be prohibitive, dashing the hopes of anyone who aspires to be an entrepreneur.

So just how much money does it cost to start a home-based business? Here’s a look.

 

Starting a business from scratch

The cost of starting a business varies wildly depending on what type of business you want to start. Some industries have very low startup costs that require high intellectual capital.

However, a 2009 study conducted by the Ewing Marion Kauffman Foundation suggests the average cost of starting a business from scratch is $30,000. That includes costs like finding an office space, securing equipment, making initial hires, legal fees, and setting up initial production. That said, it’s also possible to start a business for as little as a few hundred dollars—depending on what you’re doing.

 

Startup cost variances

Your startup costs depend heavily on what you’re selling and where you’re selling it. If you create tangible products, startup costs are naturally going to be higher, since you’ll need to invest in more equipment, as well as materials, storage, and possibly the logistics necessary to get a supply chain running.

 

Productivity tips for working at home
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If you’re selling intangible products and services like digital products, pet care, freelance writing, or consulting, your startup costs may be much lower. Industry requirements may also significantly affect what you pay, since businesses in some industries are required to pay extra to meet regulations and licensing.

Home businesses also have a natural advantage, since they don’t require you to have an office—which can ultimately cost you more than $4 per square foot per month, adding up to thousands of dollars or more every month. You’ll also make minimal hires, which can reduce your costs even further.

All in all, if you’re running a service-based home business, startup costs could be just a few thousand dollars—enough to create a website, print some business cards, establish your legal paperwork, and get all the devices and equipment you need to do the work.

 

Access to startup funding

That said, not everyone has a few thousand dollars of cash lying around, waiting to be used for an entrepreneurial endeavor. If there’s a gap between what you have an what you need, you’ll need to get business funding to close that gap.

If you have a good credit score, or a good business plan, or if you’re only seeking a few thousand dollars, you should be able to find startup business loans that fit your entrepreneurial needs.

 

Tips to cut startup costs

If you’re struggling to find a loan, or you just want to start your home business as cheaply as possible, there are some additional methods you can use to cut costs:

 

  • Work from home

    Your home-based business probably allows you to work from home, so take advantage of that opportunity. Don’t purchase a separate storefront or office space unless you absolutely have to.

  • Hire selectively (if at all)

    You might be excited to hire your first employees, but employees are some of the most expensive costs you’ll face—especially early on in your business’s development. Instead of hiring someone full-time, try to take advantage of independent contractors, and do as much work as possible by yourself.

  • Barter and trade for resources

    You’re going to need assistance and products from other businesses to create yours; for example, you’ll need legal advice, financial consulting, and electronic devices to serve your customers. Instead of paying outright for these things, see if you can arrange a barter or trade; for example, you can offer your services in exchange for theirs.

  • Cut your supply costs

    Next, if you have supply costs, do whatever you can to cut them. Not all home-based businesses will have supply costs, but if you do, this is one of the best ways to reduce your startup’s overall financial burden. For example, if you’re making crafts, consider ordering your materials in bulk, and far in advance of needing them to get a lower per-unit costs.

  • Plan for taxes strategically

    Finally, plan ahead for taxes. If you’re self-employed, you’ll need to plan to pay estimated taxes, and take advantage of as many deductions as you can. You can save upwards of thousands of dollars by doing your research and planning ahead.

 

Ultimately, it’s possible to start a home-based business for less than a thousand dollars, though most will require at least a few thousand dollars to get rolling. As long as you cut costs where you can, prepare for the costs you can’t, and secure funding in a way that plays to your strengths, almost anyone can get their home business moving.

 

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