Startup costs are the money you need to spend before your business brings in enough cash to pay its own bills. To estimate them, list every one-time cost of opening (equipment, renovations, deposits, licenses, opening inventory, launch marketing), price each item from real quotes, add a contingency buffer, then add enough working capital to cover operating losses until monthly cash flow turns positive. The total is the amount your business plan has to show how you will fund.
This guide walks through each step, gives you a startup cost worksheet you can copy into a spreadsheet, and fills it in for a made-up café so you can see how the numbers fit together.
What counts as a startup cost?
A startup cost is anything you pay for to get the business open and running until it can support itself. That includes two kinds of spending.
One-time costs happen once, at or before opening: buying an espresso machine, building out a storefront, registering the business, designing a logo, paying a lease deposit. The SBA’s guide to calculating startup costs gives major equipment, logo design, and permits, licenses and fees as typical examples.
Ongoing costs repeat every month: rent, wages, utilities, software subscriptions, insurance installments. These are not startup costs by themselves. They become part of your startup budget only for the months before revenue covers them. That slice is your working capital, covered below.
A common mistake is to stop at the one-time list. A plan that pays for the renovation but not the first slow months runs out of cash right after opening.
Capital expenses vs operating expenses
The second split matters for your financial statements and for tax.
- Capital expenses buy assets that last longer than a year: equipment, vehicles, furniture, computers, leasehold improvements. On the balance sheet they show up as assets, and their cost is spread over their useful life through depreciation.
- Operating expenses are used up as you go: permits, legal fees, marketing, pre-opening wages, the first insurance premium. They hit the income statement in the period you pay them.
Two items sit in between. Deposits (on a lease or utilities) are money you may get back, so they are an asset, not an expense. Opening inventory is also an asset until you sell it.
Why bother sorting? Lenders read your startup budget next to your balance sheet, and the split tells them how much of the money buys things that keep value (and could secure a loan) versus how much is spent for good. It also feeds straight into your financial projections, where depreciation and the opening balance sheet come from this list.
How to estimate startup costs, step by step
- Decide your opening scope. Write down what the business looks like on day one: location or home-based, number of staff, products or services offered at launch. Every cost follows from this. Keep “nice to have later” items off the list.
- List costs by category. Work through the categories in the next section and write every line item you can think of, even small ones.
- Get real prices. Replace guesses with quotes, catalog prices and written estimates. Note the source next to each number.
- Mark each line. Tag it one-time or ongoing, and capital or operating. This takes a minute and saves rework when you build projections.
- Add contingency. Add a buffer for overruns and things you forgot.
- Estimate working capital. Work out how much cash you need to cover losses until the business pays its own way, plus a cushion.
- Total it and match it to funding. Add everything up, then show where each dollar comes from: your savings, a loan, investors, grants.
- Revisit before you commit. Update the numbers when quotes come in and before you sign a lease or loan.
Common startup cost categories and line items
Not every business needs every category. A home-based consultant may skip half of this list; a restaurant will use all of it.
| Category | Typical line items | Usually |
|---|---|---|
| Premises | Lease deposit, first month’s rent, leasehold improvements, signage, security system | Capital / deposit |
| Equipment | Machinery, tools, vehicles, computers, phones, point-of-sale hardware | Capital |
| Furniture and fixtures | Desks, seating, shelving, display cases, lighting | Capital |
| Opening inventory and supplies | Stock for sale, raw materials, packaging, office supplies | Asset / operating |
| Legal and registration | Business registration or incorporation, licenses, permits, inspections, lawyer and accountant fees | Operating |
| Insurance | Liability, property, commercial auto, first premium or deposit | Operating |
| Technology | Website build, domain, software setup, data migration | Operating or capital |
| Branding and marketing | Logo, printed materials, launch advertising, grand opening event | Operating |
| People | Hiring costs, training, pre-opening wages, uniforms | Operating |
| Professional services | Business plan help, market research, consultants, architects | Operating |
| Utilities setup | Hookup fees, utility deposits, internet installation | Operating / deposit |
| Contingency | Buffer for overruns and missed items | — |
| Working capital | Cash to cover losses until break-even, plus a cushion | — |
The “Usually” column is a starting point for planning. How a specific item is treated for tax depends on your country and situation, so confirm with your accountant.
How to research real prices
Startup budgets fail on guesses. Here is how to get numbers you can defend to a lender.
- Ask for written quotes. For renovations, signage and installed equipment, get at least two quotes from local contractors. Ask what is excluded: permits, electrical work and disposal are often extra.
- Price equipment from supplier catalogs. Use current list prices from the suppliers you would actually buy from, including delivery and installation. If you plan to buy used, price used.
- Call your city or county. Ask the licensing office which permits and inspections apply to your business type and what each costs. Fees vary widely by location.
- Get insurance quotes early. A broker can quote your coverage before you open. Premiums depend on your business type, location and coverage limits.
- Check rents on real listings. Look at current listings for the size and area you want, and ask the landlord or agent what deposit and improvements are expected.
- Talk to people in the trade. Suppliers, landlords and owners of similar businesses outside your area can tell you what you are forgetting.
- Write the source next to each number. “Quote from contractor, Oct 2026” is far more convincing in a plan than a round number. The research you do for your market analysis often turns up useful price points too.
How much contingency should you add?
Contingency is a line for overruns and items you missed. There is no single right percentage. Set it based on how firm your numbers are:
- Mostly firm quotes and catalog prices: a smaller buffer is reasonable.
- Renovations, older buildings, custom work or lots of estimates: use a larger buffer, because these are where overruns happen.
- Apply it to one-time costs, not to working capital. Working capital already has its own cushion.
Whatever you choose, state the percentage and the reason in the plan. A reader trusts “10% contingency on one-time costs; most items are quoted” more than an unexplained round number.
Working capital and cash runway
Working capital, in a startup budget, is the cash you set aside to keep the business running between opening day and the month it covers its own costs. Cash runway is how many months that cash lasts.
There are two ways to estimate it.
Method 1: months of operating costs. Multiply your monthly operating costs by a number of months, for example three or six. It is quick and conservative, because it assumes no revenue at all. It works for a first draft.
Method 2: cumulative shortfall from a cash flow forecast. Build a month-by-month cash flow forecast (revenue in, expenses out). Add up the negative months until the business turns cash-positive. That sum is the minimum working capital you need. Then add a cushion, such as half a month or one month of operating costs, in case sales ramp up slower than planned.
Method 2 is better for a business plan because it ties your startup budget to your sales assumptions, and a lender can check one against the other. If your forecast shows losses for longer than you expected, that is a finding, not a formatting problem: either the plan needs more funding or the business model needs work.
Remember loan payments. If you borrow, your monthly costs include repayments from the start, so include them in the forecast.
Startup cost worksheet
Copy this table into a spreadsheet, delete the rows you don’t need, and add your own. Keep the “Source” column filled in.
| Line item | One-time or ongoing | Capital or operating | Amount | Source |
|---|---|---|---|---|
| Lease deposit | One-time | Deposit | ||
| Leasehold improvements | One-time | Capital | ||
| Equipment | One-time | Capital | ||
| Furniture and fixtures | One-time | Capital | ||
| Computers and POS | One-time | Capital | ||
| Signage | One-time | Capital | ||
| Opening inventory | One-time | Asset | ||
| Licenses, permits, inspections | One-time | Operating | ||
| Legal and accounting setup | One-time | Operating | ||
| Insurance (first premium) | One-time | Operating | ||
| Website, logo, launch marketing | One-time | Operating | ||
| Pre-opening wages and training | One-time | Operating | ||
| Subtotal: one-time costs | ||||
| Contingency (__% of subtotal) | ||||
| Working capital (shortfall + cushion) | Ongoing | |||
| Total startup costs |
Example: startup costs for a small café
Example: a made-up café called Juniper Street Coffee. All numbers are invented for illustration. Real costs depend on your location, space and suppliers.
The owner plans a 40-seat café in a leased former retail unit, with three staff plus herself.
One-time costs
| Line item | Type | Amount |
|---|---|---|
| Lease deposit (two months’ rent at $4,000) | Deposit | $8,000 |
| Leasehold improvements (plumbing, counter, flooring) | Capital | $45,000 |
| Espresso machine and grinders | Capital | $18,000 |
| Other kitchen equipment | Capital | $14,000 |
| Furniture and fixtures | Capital | $9,000 |
| POS hardware and setup | Capital | $2,500 |
| Signage | Capital | $3,500 |
| Opening inventory (coffee, milk, food, cups) | Asset | $6,000 |
| Licenses, permits, inspections | Operating | $1,500 |
| Legal and accounting setup | Operating | $3,000 |
| Insurance (first premium) | Operating | $2,000 |
| Website, logo, launch marketing | Operating | $4,500 |
| Pre-opening wages and training | Operating | $5,000 |
| Subtotal: one-time costs | $122,000 | |
| Contingency (10% of subtotal) | $12,200 | |
| One-time costs with contingency | $134,200 |
By type, the subtotal splits into $92,000 of capital purchases, $8,000 in deposits, $6,000 of inventory and $16,000 of operating expenses.
Working capital
Monthly operating costs once open are $23,000: rent $4,000, wages $16,000, utilities $1,200, insurance $200, software $150, marketing $500 and other costs $950.
The owner’s cash flow forecast shows the café losing money for six months while regulars build up: $9,000 in month one, then $7,000, $5,000, $3,000, $1,500 and $500. The cumulative shortfall is $26,000. She adds a cushion of half a month’s operating costs ($11,500).
| Working capital | Amount |
|---|---|
| Cumulative shortfall, months 1–6 | $26,000 |
| Cushion (half a month of operating costs) | $11,500 |
| Working capital needed | $37,500 |
Total
| Summary | Amount |
|---|---|
| One-time costs | $122,000 |
| Contingency | $12,200 |
| Working capital | $37,500 |
| Total startup costs (illustrative) | $171,700 |
Notice that working capital is more than a fifth of the total. Leave it out and this café would open with a finished renovation and no cash for its first payroll.
How startup costs connect to funding needs in your plan
Your startup cost total is the “uses of funds.” The funding request in your plan is the “sources of funds.” The two must match to the dollar. Many plans show them side by side:
| Uses of funds | Amount | Sources of funds | Amount |
|---|---|---|---|
| Capital purchases | $92,000 | Owner’s savings | $51,700 |
| Deposits | $8,000 | Bank term loan | $120,000 |
| Opening inventory | $6,000 | ||
| Pre-opening operating costs | $16,000 | ||
| Contingency | $12,200 | ||
| Working capital | $37,500 | ||
| Total | $171,700 | Total | $171,700 |
Same made-up café. The split between savings and loan is illustrative, not a lender requirement.
A few things to get right here:
- Match the funding type to the use. Equipment and improvements are long-lived, so they are often financed over several years. Working capital is often covered by owner cash or a line of credit. Ask your lender what they will finance and what they expect you to put in yourself.
- Check program rules line by line. Government-backed loans often limit what the money can pay for. If you are applying for a Canada Small Business Financing Program loan, see our guide to a CSBFP loan business plan for what the program covers.
- Carry the numbers through. The same figures must appear in your opening balance sheet, your cash flow forecast and your funding request. Our guide on how to write a business plan shows where each section goes.
- Consider leasing. If you lease equipment instead of buying it, the cost moves from one-time to monthly. Your startup total drops, but your monthly costs and working capital need rise.
How startup costs are treated for tax
Tax rules on startup costs differ by country, and this is general information, not tax advice. Check with an accountant before you decide how to record anything.
- In the US, IRS Publication 583, Starting a Business and Keeping Records, says you can elect to deduct up to $5,000 of business start-up costs and up to $5,000 of organizational costs. Each $5,000 limit is reduced by the amount your costs exceed $50,000, and the remaining costs must be amortized.
- In Canada, the CRA’s page on business expenses explains that to deduct an expense you need to have carried on the business in the period you incurred it, so costs from before the business started may not be deductible. It also separates current and capital expenses: capital property is written off over time through capital cost allowance rather than deducted all at once.
Either way, keep every receipt from the planning stage. Your accountant will need them.
Startup cost checklist
Before you put the number in your plan, check that you have:
- Described the business as it will be on opening day, not in year three
- Listed items in every relevant category, including small ones
- Replaced guesses with quotes or catalog prices, and noted each source
- Tagged each item one-time or ongoing, capital or operating
- Included delivery, installation, taxes and permit fees on big purchases
- Added a stated contingency percentage with a reason
- Estimated working capital from a month-by-month cash flow forecast
- Included loan repayments in monthly costs if you are borrowing
- Matched the total to your sources of funds, to the dollar
- Used the same numbers in your balance sheet, cash flow forecast and funding request
- Asked an accountant how to treat the costs for tax
Common mistakes
- Forgetting working capital. The most expensive omission, as the café example shows.
- Using round numbers with no source. They read as guesses, because they are.
- Leaving out your own pay. If you need to draw money to live on while the business ramps up, put it in the monthly costs.
- Underestimating time to open. Every extra month before opening means more rent and wages with no sales. Build the timeline from real permit and contractor lead times.
- Buying for year three. Opening with equipment sized for future demand ties up cash you need now.