How much money should you save to start a business?

How much money you need to start a business is not the same amount of money you need to save to start a business.


People who save enough to get started often have a rocky road of cash flow trouble ahead and are at a higher risk of failing or giving up. Consider these following questions before you stop savings:

  • Do you have everything you need to service your customer and complete a sale?
  • Do you have enough money to cover operating expenses if there is no money coming in?
  • Will your new business be your only source of income? If so, then do you have enough money for your personal living expenses until your business becomes profitable?

Census data reports that 40 percent of entrepreneurs start their businesses with less than $5,000 and 64 percent start with less than $10,000. You may be encouraged by these numbers but remember the more you save for your business, the more prepared you will be for challenging months ahead. To increase your chances of success and reduce the risk of failure, take the time to do your research. When you carefully research and calculate how much it costs to start and run your business, you will have more control of your success.

Every company is different, but even for your unique and innovative idea, you can find resources to help you calculate accurate estimates of how much money you will need to get started. You first need to establish a comprehensive list of capital costs, operating costs and living expenses. Then, use your network and organizations in your industry to determine what to list in each category and how much you will need to create a budget for your business. The sections below provide some resources you can use and tips for calculating how much money you will need to save.

Resources to Help You Research Startup Costs

However different and unique your idea is, there will be someone who has gone before you who can help. Talk to people in your industry or in professional organizations who have more experience than you. Their help will be invaluable, consider these new contacts another investment in your new business.

People in the Business

Your business will fall into one of two categories: a service or a product. If your company will be offering a service, then talk to other people who run businesses that provide a service. Do you need a lot of equipment? Ask the tree-cutter how he was able to save money on his wood chipper. Will you need to purchase supplies? Ask the hairstylist how she estimates monthly product costs. Speak to people who are retiring from the industry for advice.


Establishing trusting relationships with your suppliers or vendors is an important step to take for any business. Your vendors include your suppliers, your insurance agent, your accountant and anybody from whom you buy goods or services. Even before you start your business, these representatives will be willing to help. From their point of view, helping you now could win them a new customer in the new future. Since some suppliers work on a credit system, you may want to ask if your credit score will impact your business transactions.

Trade Associations

Trade associations are exceptional places to find information and resources because they are there to support businesses in your specific industry. Not only will they have advice and consulting but they may have reports and worksheets to help you plan and get started.

Training and Consulting Services

If you are having trouble connecting with people or finding information on associations you can turn to, then the Small Business Association and the Service Corps of Retired Executives (SCORE). SCORE is free and available in over 300 locations with more than 12,400 participating counselors. The focus of this group is to counsel you in starting your business and connect you with retired executives in your niche market.

How to Calculate How Much You Need

Now that you have lined up some resources for your research, you need to build your list of costs. What equipment and services will you need, how much of each and for what price? Essentially, how much will it cost to run the business each month? The best way to avoid bankruptcy is to ensure you are prepared for the upcoming costs.

Startup equipment costs – Determine how what equipment you need and how much it costs. Would it be more cost effective to rent at first and buy later? Can you buy used equipment? Remember to list just the essentials at this point. If you are the only driver in your new delivery service company, then you only need one car. Cross that new delivery van off your list. Gather different quotes from suppliers and build your network of potential vendors.

Operating costs – What will it cost to keep your business running? Determine the monthly costs for expenses like the following:


  • Office supplies
  • Products or raw materials
  • Marketing and advertising
  • Rent
  • Utilities
  • Payroll
  • Taxes

If you are struggling with how to identify the operating expenses for your specific business, then turn to the resources above. People already in your industry know what they spend every month and what they spend it on. They will help you understand your business operating expenses, some of which you may not had considered and the non-essentials you should eliminate.

Professional services – It is true that as a small business owner you are responsible for dozens of jobs including a clerk, custodian, CEO and sales. But nobody can do everything. You may need regular legal advice or consulting for contracts or transactions. You may not understand bookkeeping at first and the benefits of retaining a bookkeeping service for the first year far outweigh the costs. Consider what you are capable of doing and what you will need to outsource, then research the prices for these services.

Living expenses – Finally, calculate how much money you need each month for personal expenses. If you can, then cut down on living expenses. Experts recommend you have six to 12 months of savings to carry you through your first year in business. This cushion will help you manage times with little to no income and free up incoming money for reinvesting into the business.

Starting a business with your own money gives you much more control than borrowing or taking out a loan to start a business. You avoid the added operating costs of loan payments and interest charges, and you are not at the mercy of a lender who may, at any time, stop their financial support. You also keep full control of your company and avoid the potential power struggles between you and your investor(s).


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