"You can start a business with almost no money" is technically true in a handful of narrow situations and dangerously misleading in most others. The real answer depends on what kind of business you're starting, what "legitimate" actually requires, and what costs are non-negotiable versus optional until you have revenue. Most first-time founders underestimate startup costs not because they're being naive, but because nobody gives them a clear breakdown of what's actually required.
This guide does exactly that. It separates the mandatory costs from the discretionary ones, covers how the numbers change by business type, and gives you a realistic picture of what you'll spend before you see your first dollar of revenue.
Before talking numbers, it's worth being clear about what starting a legitimate business means at a minimum. You need a legal structure on file with your state, proper tax identification with the IRS, the appropriate licenses and permits for your industry and location, and – if you're taking money from customers – a business bank account and a way to accept payments legally. Everything beyond that is infrastructure that supports growth, not requirements for legal operation.
The requirements vary by business type, industry, and state, but the core compliance layer is consistent. Skipping it doesn't reduce your startup cost – it creates liability and tax problems that cost significantly more to fix later than they would have to set up correctly from the beginning.
These are the costs that apply regardless of whether you're running a solo consulting practice, a product company, or a brick-and-mortar store.
Registering your business structure is the first step. The most common choices are sole proprietorship, LLC, S-corporation, or C-corporation, and the right choice depends on your liability exposure, tax situation, and growth plans.
A sole proprietorship has no formation cost – you're operating under your own name or a DBA (Doing Business As), which costs $15–$100 to register with your county. There's no liability protection, meaning personal assets are exposed to business debts and lawsuits.
An LLC (Limited Liability Company) is the most popular structure for small businesses and costs $50–$500 in state filing fees depending on where you're incorporating. Some states are notably more expensive: California charges $70 to file plus an $800 annual minimum franchise tax. Delaware charges $90 to file and is popular for startups planning to raise venture capital, though doing business in your home state typically still requires a foreign qualification filing there. Many founders use a registered agent service ($50–$300 per year) to handle compliance and registered office requirements.
S-corps and C-corps are more expensive to form and maintain and are typically the right choice for businesses planning to take on investors, issue stock, or hire employees at scale. Formation costs run $100–$500 in state fees, but the ongoing legal and accounting requirements push annual maintenance costs significantly higher.
Realistic cost range: $100–$600 to form an LLC; $50–$300/year ongoing for registered agent and state compliance fees.
An Employer Identification Number from the IRS is free and can be obtained in minutes at IRS.gov. You need it to open a business bank account, hire employees, and file business taxes. This is one of the few startup tasks that is genuinely zero cost.
Most businesses need at least one license or permit to operate legally. The complexity here varies enormously by industry. A freelance graphic designer typically needs a general business license from their city ($25–$100/year). A restaurant needs a food handler's permit, health department certification, liquor license (if applicable), fire safety inspection, and potentially more – total licensing costs can run $1,500–$15,000 before you open. A contractor needs state licensing, liability insurance, and in many trades a bond.
Before finalizing your startup budget, research your specific licensing requirements through your city or county clerk's office and your state's business portal. The SBA's Business License and Permit guide is a useful starting point for federal-level requirements. Budgeting $200–$2,000 for initial licensing covers most service businesses; regulated industries require a specific investigation.
Most banks require a small opening deposit ($25–$100) and may charge monthly fees ($0–$25 depending on the institution). Online business banks like Relay, Mercury, or Novo charge no monthly fees and have minimal or no opening deposit requirements, making them the practical choice for most startups.
You legally need a business bank account separate from your personal finances once you form an LLC or corporation – commingling funds can pierce the corporate veil that protects your personal assets from business liability.
Beyond the mandatory baseline, what you spend depends entirely on your business model. Here's a realistic breakdown by common business type.
A solo consultant, freelance writer, designer, accountant, or coach can get legitimately operational for $500–$2,000. The LLC formation, business bank account, a simple website ($100–$500 for a template-based setup), and a basic invoicing tool ($0–$25/month for platforms like Wave or QuickBooks Simple Start) cover the essentials. If your work requires professional liability insurance – which it does in most professional service contexts – add $500–$1,500/year for a basic errors and omissions policy.
The total upfront cost for a legitimate, insured service business is realistic at $1,000–$3,000 in year one, including the first year of insurance and compliance costs.
Selling physical products adds inventory and platform costs that service businesses don't face. A small e-commerce startup selling through Shopify or Etsy should budget for:
Platform and hosting: Shopify starts at $39/month. Etsy charges $0.20 per listing plus transaction fees. A standalone WooCommerce setup on your own domain costs $100–$300/year in hosting and the domain.
Initial inventory: This is the largest and most variable cost. A dropshipping model eliminates upfront inventory entirely – you order from a supplier after the customer pays. A model where you hold inventory requires capital: even a small initial run of a physical product can run $500–$5,000 depending on the product and supplier minimums.
Packaging, shipping supplies, and initial photography: $200–$800 for a starter setup.
Total year-one cost for a small e-commerce business: $2,000–$10,000 depending on whether you're holding inventory and how much initial product you carry.
Food businesses face the highest startup cost of any common small business category, primarily because of facilities, equipment, and regulatory requirements. A food truck runs $50,000–$150,000 in startup costs for the vehicle, equipment, permits, and initial supplies. A small café or coffee shop runs $80,000–$300,000. A home-based cottage food business – selling baked goods or preserved items under your state's cottage food law – can operate for under $1,000 in licensing and equipment costs, making it the entry point for food entrepreneurs.
A physical retail location involves lease costs (first month, last month, and security deposit is a common requirement, often totaling three to four months of rent upfront), buildout and fixtures, inventory, point-of-sale system, and the full suite of formation and licensing costs. Startup costs for a small retail store realistically run $50,000–$200,000 depending on location, category, and how much buildout the space requires.
Several categories consistently catch first-time founders off guard because they're either invisible until they arrive or feel optional until they're not.
Working capital gap. Most businesses take three to twelve months to reach consistent revenue. You need reserves to cover operating costs during that period – your own salary (if you're leaving employment), business expenses, and marketing costs – before income catches up. The SBA recommends having six months of operating expenses in reserve at launch. Many businesses fail not because the model doesn't work but because the founder ran out of cash before the model had time to prove itself.
Self-employment taxes. If you're leaving a W-2 job to run your business, you'll no longer have payroll taxes split with an employer. Self-employment tax (covering both the employer and employee portions of Social Security and Medicare) runs 15.3% on top of income tax. First-time founders frequently underestimate their tax burden in year one by thousands of dollars. Budgeting 25–30% of net business income for taxes in your first year is a reasonable starting estimate; working with a CPA from the beginning avoids expensive surprises.
Professional services. A business attorney to review your formation documents, a CPA to set up your accounting structure and advise on entity choice, and potentially a bookkeeper to maintain your records aren't optional if you want to avoid the costly mistakes that come from getting these things wrong. Budget $500–$2,000 for initial professional advice – it typically saves more than it costs.
Insurance. General liability insurance ($400–$1,500/year), professional liability/E&O ($500–$1,500/year), and business property coverage if you have equipment or inventory are real costs that need to be in your startup budget. Many small business owners skip insurance until something goes wrong, at which point it's too late to use it for the event that just occurred.
Starting a business without an EIN and a separate business bank account to "see if it takes off first" creates a tax mess and liability exposure that is harder and more expensive to unwind than setting them up correctly from day one. Formation takes a few hours and costs under $500. Do it before you take your first dollar.
Choosing the wrong business structure because it seems simpler or cheaper in the short term is a common mistake. A sole proprietorship has no formation cost, but it offers no liability protection. If someone sues your business, they're suing you personally. For most businesses with any meaningful customer interaction or financial exposure, an LLC is worth the formation fee from the first day.
Underfunding the working capital reserve is how the majority of legitimate businesses with viable models fail. Having enough capital to survive the ramp-up period is as important as the quality of the business idea itself.
These are total year-one cost estimates including formation, licensing, basic tools, insurance, and modest working capital – not including personal salary replacement:
Solo service business / freelancing: $2,000–$5,000
Online business / e-commerce (no inventory): $2,500–$6,000
E-commerce with inventory: $5,000–$15,000
Trades / contractor business: $5,000–$20,000 (licensing, tools, insurance, vehicle)
Cottage food / home-based food: $1,000–$3,000
Food truck: $60,000–$150,000
Retail store: $50,000–$200,000
Restaurant / café: $80,000–$300,000
Can I start a business with $500? For a solo service business – freelancing, consulting, coaching – yes. Formation, a basic website, and your first marketing effort can stay under $500 if you DIY the setup. Add insurance and professional accounting support and you're closer to $1,500–$2,000 in year one, which is still very accessible.
Do I need a lawyer to start a business? Not necessarily for a simple LLC formation – most states make the filing straightforward enough to do yourself or through a service like Northwest Registered Agent or Stripe Atlas. A lawyer becomes valuable for partnership agreements, contracts with clients or vendors, and any situation involving IP, equity, or significant financial exposure. For a solo service business starting with individual clients, a contract review by a business attorney ($250–$500) is a worthwhile early investment.
What's the minimum to be legally compliant? At minimum: a registered business structure (or DBA for sole proprietors), an EIN, the appropriate local business license, and a separate business bank account. Industry-specific licenses, insurance, and permits layer on top based on what your business actually does.
Is an LLC worth it for a solo freelancer? Usually yes. The annual state fee ($50–$800 depending on your state) buys separation between your personal assets and business liability. If a client claims your work caused them financial damage and sues, the LLC limits their reach to business assets rather than your personal savings. For most freelancers doing any meaningful volume of work, the protection is worth the cost.
The real cost of starting a legitimate business ranges from under $2,000 for a simple service business to over $100,000 for a food or retail operation with physical infrastructure. The number matters less than understanding which costs are non-negotiable, which are discretionary, and what your working capital runway needs to look like for your specific model and timeline. Building your startup budget around a clear-eyed view of these figures – rather than the most optimistic scenario – is one of the most important things you can do before committing to launch.
U.S. Small Business Administration – Business Licenses and Permits: https://www.sba.gov/business-guide/launch-your-business/apply-licenses-permits
IRS – Apply for an Employer Identification Number (EIN): https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
U.S. Small Business Administration – Fund Your Business: https://www.sba.gov/business-guide/plan-your-business/fund-your-business
IRS – Self-Employment Tax Overview: https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes
SCORE – How Much Does It Cost to Start a Business?: https://www.score.org/resource/blog-post/how-much-does-it-cost-start-business
