Sole Proprietorship Startup Costs

A man working in his sole proprietorship bicycle repair shop
Photo: Mint Images / Getty Images

As you start a business you may consider setting it up as a sole proprietorship, which is a type of business structure that is run and owned by one person. As with all startup businesses, there will be expenses to consider.

There is more to going into business for yourself than just getting business cards printed or sticking up a web page—the modern-day version of "hanging out your shingle." Unanticipated business expenses can wreak havoc on both your business and personal life, so it's good to be prepared.

Key Takeaways

  • Starting a sole proprietorship requires startup funds, like any kind of business.
  • Licensing, taxes and financial services are a good portion of the costs of starting a sole proprietorship and are important to how your business will function down the line.
  • Other costs such as equipment, office space and marketing are often needed for most sole proprietorships.

Below are some of the common costs of starting your business so you can know what to expect.

State and Federal Fees and Licenses

The earliest expenses you will incur will be during startup are during the process of making your business a legal entity. This involves working with your state to file and pay for a license to conduct business.


Laws vary from state to state, but even if local laws don't require a license, your bank probably will in order to accept checks made payable to the business name.

If you will be doing business under a business name or an assumed name you will have to complete "doing business as" (DBA) paperwork.


Another early requirement is to set your business up with the state and federal taxing agencies. This will include receiving an Employer Identification Number (EIN).

Prepare to pay quarterly as cash starts to flow. Entrepreneurs have many deductible items, but they also have to pay all social security taxes. Remember, no one is withholding for you.


Plan for these things when you're calculating your initial cash flow requirements, and you'll save your sanity, and maybe even your business, down the road.

A good practice is to set up a separate account for taxes and transfer money into there as it comes in.

Professional Services 

You may not think you need ongoing accounting, legal, or other help, but it is advisable to use these professionals as you begin.

An account or CPA will help you to set up your initial business books. It is good to talk with an attorney to make sure all contracts you use are correct and binding. You should also talk with an insurance provider or agent to get coverage for any business liability.

Also, some businesses will also need to get bonded which is a guarantee of your performance to your customers.

Start-Up Equipment Costs

No matter what, every self-employed entrepreneur has some equipment needs. These equipment needs will be specific to the type of business activity you will be undertaking and can include a new or upgraded computer and printer, specialized tools, or perhaps even a business vehicle.


Gas costs will rise and fall with the market. So, if you're traveling to visit prospects, be prepared to visit the pump more often. Also, your vehicle may need to be able to carry your product or equipment, or you may need to be able to take clients to lunch.

Is your vehicle up to the task? You may need to clean out the trunk and the back seat and have it detailed.

Sole Proprietorship Office Space

Whether you use your home, your car, your best friend's garage, an office suite, or Starbucks, you will need a business space.


Some city codes will limit the type of business activities you may run from your home.

If you are planning to a home office, you should keep that space as an office-only space for easier accounting purposes. The Internal Revenue Service (IRS) is very specific about what is considered a home office.

Marketing and Websites

Marketing is a wide area that may include additional cell phone time, business cards, advertising in local print media, and printing flyers. If you print items yourself you will need to consider the cost of printing, paper, and ink. Don't let those hidden costs sneak up on you. For example, with an inkjet printer, the ink is often more expensive than paper, especially if you print in color.

Your business will probably need the creation of a website and perhaps want a domain name connected to your business.


Depending on your abilities you may be able to use a site such as WordPress to build your own site.

You may want to pay someone to create a site for you. If you pay someone be sure you have the rights and access codes necessary to change and update the information contained there.

Although networking is probably the least expensive marketing you can do, it is important to attend networking events for certain types of business. Such events incur costs for membership fees, meals, parking, travel, and other such charges.

Banking and Credit Card Processing Fees

If you want to accept checks and credit card payments under your business name, your bank will likely require you to have a business account, rather than a personal account, even if you're a sole proprietor.


Find a bank that specializes in serving small businesses so that your monthly fees stay reasonable.

If you will be accepting credit cards you may need an account that allows those transactions. You will need to have the proper agreements and equipment in place for your merchant account. Merchant accounts generally have an initial cost for equipment plus monthly fees or minimums.

Other Sole Proprietorship Start-Up Costs

If you are moving into a sales type of sole proprietorship, you may need to upgrade your wardrobe. Think about what image you want to project to your target market. If you've been wearing business casual at work, and suddenly you have to go buy a couple of new suits, it can add up, and unfortunately, it's not tax-deductible.

You may need to get certified in specific skills or abilities to better serve your customers. The cost for this type of ongoing education can be high but will give you an expanded customer base. Some states will also have requirements for certification.

Frequently Asked Questions (FAQs)

What is the start up cost of a sole proprietorship?

The cost depends on the state you live in, the kind of company you're starting and the kind of equipment you need.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Small Business Administration. "Apply for Licenses and Permits."

  2. IRS. "Sole Proprietorships."

  3. IRS. "Home Office Deduction at a Glance."

Related Articles