What You Need to Know About Calculating Business Startup Costs

Business startup costs include all the one-time expenses you’ll incur before you’re technically open for business. The great thing is that these startup business costs can be tax deductible. But how much do you need, and what else should you consider? Learn what you need to know about calculating startup costs for your new Kentucky business.

How Much Does It Cost to Start a Business?

The cost to start a business will vary based on several factors, including the type of business you’re in, the area you’ll be operating this business, and what you need to get started. The SBA estimates that most home-based businesses only need to invest about $3,000 to get started. Other business models can require upwards of a million dollars, so understanding these costs is vital to your business plan. 

Typical Startup Business Costs & Tax Deductions 

A list of examples of your business start-up costs might include:

• Market research to determine if you should buy or create this new business
• Licenses, permits, legal fees
• Building, facility, or land 
• Inventory
• Employees or labor 
• Rent and utilities
• Furniture, supplies, equipment 
• Insurance
• Marketing expenses like signs, flyers, website, agency, or freelance costs
• Technology needs, including laptops, phones, tablets, credit card payment processing systems, software like customer relationship management systems, inventory programs, and more 

It’s important to keep track of all your startup expenses because you’ll need this information when filing your taxes. The IRS defines business start-up and organization costs as capital expenditures. They allow business owners to deduct up to $5,000 of business start-up and $5,000 of organization costs incurred after 10/22/2004. According to the IRS, startup costs include expenses that went into investigating the creation or acquisition of a business and creating an active trade or business. Organizational costs include expenses related to building a corporation or partnership. 

Depending on the type of expense, you may be able to deduct or amortize costs for the one-time business startup costs. Use the Small Business Administration’s startup costs worksheet to keep track of your specific start-up expenses.  It is always smart to talk to your tax professional or CPA for more information and specific guidance relevant to your business. 
 

Starting a Business in Kentucky

In Kentucky, there are several helpful resources to help you get your new business off the ground. 

Funding Your Business Startup Costs 
If you’d like to seek business financing to cover your business startup costs, a great first step is to develop a strong business plan. Investors and lenders like Paducah Bank want to understand your estimated startup costs, whether your business idea is viable, how it will be operated, your marketing strategy, and projected business expenses and revenue. Business counselors can advise you on how to outline these essential components in your business plan so you maximize your ability to secure startup business financing. 

Check out these small business resources in Kentucky:

• Kentucky Small Business Development Center
• SCORE
• Kentucky Cabinet for Economic Development

We love helping entrepreneurs get started at Paducah Bank, and we have several business tools and resources to help you get started, including: 

• Free Resources for Small Business Owners
• Steps for Starting a Small Business

Our business loans can help turn your business idea into a reality. As a preferred SBA lender, we can help you navigate government programs to get the financing you need to manage cash flow, purchase inventory or fixed assets, buy equipment or buildings, and more.  If you’d like to talk to a local business specialist in Kentucky, please contact us to schedule an appointment.