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When you're starting a new business, chances are you don't have a huge budget to work with. One way to trim your startup costs is by launching a business in a location that’s affordable due to a low cost of living, low tax rates or other factors. A new study by SmartAsset investigated the cost of starting a business in various cities around the U.S. to see what cities have the lowest startup costs. SmartAssets used these five factors in determining startup costs:

  1. Office space
  2. Utilities
  3. Filing fees for incorporating or forming an LLC
  4. Legal and accounting costs for the first year in business
  5. Payroll for five employees earning that city's median annual salary

Overall, the study found, the South is the most affordable place to start a new business. Relatively low labor costs and low rent for commercial office space were the key factors here. The cheapest place to start a business is Chattanooga, Tennessee, followed by Columbia, South Carolina; Wichita, Kansas; Knoxville, Tennessee; Orlando, Florida; Lexington, Kentucky; Little Rock, Arkansas; Greensboro, North Carolina; Memphis, Tennessee; and Louisville, Kentucky.

What about the most expensive place to start a new business? Not surprisingly, that dubious honor goes to the Bay Area. High taxes in California combined with expensive real estate and high average salaries for employees mean that startup costs in San Jose and San Francisco are more than 50 percent higher than the national average. Ouch!

Of course, locating in a low-cost city isn't the only way to save money on startup. Here are some other cost-cutting tips that can work no matter where you are:

  • Run your business from home. This won't work for every business, but if it will work for yours it can save you a bundle on utilities and rent. Another option that’s somewhere in the middle: Find a co-working space where you can rent space as-needed for much less than the cost of a traditional commercial office.
  • Rethink your business model. If you have your heart set on a high-cost startup such as a retail store or restaurant, think about ways you can adjust your business model to lessen the startup cost. For example, how about opening a food truck instead of a full-scale restaurant? You can open a restaurant later on if your concept proves successful, but in the meantime you'll save a bundle and start to build your brand awareness.
  • Don't be too quick to hire. The cost of employees is one of the biggest expenses in even the lowest-cost cities in the SmartAssets study. If at all possible, try to delay hiring full-time workers until you absolutely have to. There are so many other options for getting work done these days, such as outsourcing to independent contractors and freelancers, or hiring a virtual assistant to help you with day-to-day tasks.

One last word of warning: Don't be penny-wise and pound-foolish. If a commercial location or full-time employees will help your business grow faster or become more profitable, then go for it. Saving money isn't the ultimate goal of entrepreneurship, after all; making money is.

Your SCORE mentor can help you figure out how to save money (and how to make money). Don’t have a mentor yet? Visit www.score.org to get one. 

About the Author(s)

Rieva Lesonsky

Rieva is CEO of GrowBiz Media, a content and consulting company specializing in covering small businesses and entrepreneurship and SmallBizDaily.com.

CEO, GrowBiz Media
Startup Costs