A sole proprietorship is one of the simplest and most affordable ways to start a business. With minimal paperwork and no formal incorporation requirements, many entrepreneurs choose this structure to launch their business quickly. But while starting a sole proprietorship is relatively low-cost, there are still important expenses to consider, from business registration to essential operational costs.

Let’s break down some of the essential costs of starting a sole proprietorship, how to keep expenses low, and how North One can help manage your business finances efficiently.

Understanding the Costs of Starting a Sole Proprietorship

One of the biggest advantages of a sole proprietorship is its low startup cost compared to other business structures like LLCs or corporations. Unlike incorporated businesses, sole proprietors don’t need to file formal paperwork at the federal level, and many can operate with minimal expenses. However, depending on your state, industry, and business model, you may still need to cover certain registration, licensing, and operational costs.

When calculating the cost of starting a sole proprietorship, it helps to break expenses into two categories:

  • Fixed Costs: One-time expenses such as registering a Doing Business As (DBA) name, purchasing equipment, or setting up a website.
  • Variable Costs: Ongoing expenses like business insurance, software subscriptions, inventory, and marketing that fluctuate based on your business needs.

Some sole proprietors, such as freelancers or online consultants, may have little to no upfront costs, while others, like product-based businesses or service providers, may need licenses, tools, or workspace setup. Understanding these cost factors helps new business owners budget effectively and avoid surprises as they start their venture.

Breaking Down Start a Sole Proprietorship Startup Costs

Starting a sole proprietorship is cost-effective, but there are a few key expenses to keep in mind. The total cost varies depending on your business type, location, and industry requirements. Here’s a breakdown of the most common startup costs for sole proprietors:

1. Business Registration & Licensing

Most sole proprietors don’t need to register a formal business entity, but depending on your industry, you may need licenses, permits, or a DBA name to operate legally. Costs vary by state and profession.

  • “Doing Business As” Name: If you’re operating under a name different from your legal name, you may need to register a DBA. This typically costs $10–$100, depending on your state.
  • Business Licenses & Permits: Some industries require local, state, or federal licenses, such as food service permits, professional certifications, or home-based business approvals. Costs range from $50 to several hundred dollars, depending on regulations.
  • Employer Identification Number (EIN): Sole proprietors don’t need an EIN unless they have employees, but getting one is free through the IRS website and can be useful for tax and banking purposes.

2. Banking & Financial Setup

Even though sole proprietors can legally use a personal bank account, separating business and personal finances is a smart move. Setting up the right financial tools early on helps with bookkeeping, taxes, and budgeting.

  • Business Bank Account: While not legally required, having a separate business bank account helps manage finances. Some banks charge monthly fees, but North One offers affordable, business-friendly banking solutions.
  • Accounting Software or Bookkeeping Services: Managing finances is crucial. Software like QuickBooks, Wave, or FreshBooks costs $0–$50 per month, while hiring an accountant may range from $300–$1,000 annually.

3. Business Insurance

Depending on your industry, business insurance may be necessary to protect against liability, property damage, or client disputes. Even if it’s not required, it can provide peace of mind.

  • General Liability Insurance: Recommended for businesses that interact with clients or customers. Costs typically range from $30–$60 per month, depending on the business type.
  • Professional Liability Insurance: For service-based businesses (consultants, coaches, freelancers), coverage can range from $50–$150 per month.

4. Marketing & Branding

Attracting customers is essential for success, so investing in branding and marketing helps establish credibility and generate business. Costs vary based on your promotional strategy.

  • Website & Domain Registration: A domain costs $10–$50 per year, and basic website hosting can start at $100–$500 annually.
  • Logo & Branding: DIY design tools are free, while professional branding services range from $100–$500+.
  • Advertising & Marketing: Paid ads, social media promotions, and email marketing software may cost anywhere from $50–$500 per month, depending on your strategy.

How Much Does It Cost to Start a Sole Proprietorship?

So how much should you expect to spend to start a sole proprietorship? The answer really depends on the nature of the business you’re spinning up. 

Low-cost businesses, like freelancing or consulting, typically require $50–$500 for essentials like a website and business registration. Moderate-cost businesses, such as service-based companies or online stores, may need $500–$3,000 for equipment, marketing, and initial inventory. Meanwhile, higher-cost businesses, like brick-and-mortar stores or those requiring specialized equipment, often start at $3,000+. 

Understanding your specific business needs will help you budget effectively and avoid unnecessary expenses. Ultimately, you can expect to ballpark a few hundred dollars for the basics—and the costs go up from there. 

5 Tips to Keep Sole Proprietorship Startup Costs Low

Starting a business doesn’t have to break the bank. Sole proprietorships are one of the most affordable business structures, and with smart planning, you can reduce costs and maximize your initial investment. Here are some practical ways to keep expenses low while setting up your business.

  1. Use Free or Low-Cost Business Tools. There are plenty of free and affordable tools available for website building, accounting, marketing, and project management. Platforms like Canva (for design), Wave (for bookkeeping), and Mailchimp (for email marketing) can help cut costs without sacrificing quality.
  2. Start Small and Scale Gradually. Instead of spending heavily upfront, invest in essentials first and expand as revenue grows. Many sole proprietors start with a Minimal Viable Product (MVP) and reinvest profits into branding, marketing, and business improvements.
  3. Work from Home or Use Co-Working Spaces. Renting an office or storefront can be expensive. If possible, run your business from home or use an affordable co-working space to save on overhead costs. Many successful businesses start from a home office and scale when necessary.
  4. Take Advantage of Free Marketing Strategies. Paid ads can be effective, but free marketing channels like social media, SEO blogging, and word-of-mouth referrals are excellent for building awareness without high costs. Engaging with potential customers through LinkedIn, Instagram, and Facebook can drive organic growth.
  5. Choose an Affordable Business Banking Solution. Banking fees can add up, especially for new businesses. Selecting a low-fee business bank account, like North One, helps avoid unnecessary costs while providing essential financial management tools.

By making strategic choices early on, you can reduce unnecessary expenses and maximize profitability, allowing your sole proprietorship to grow efficiently.

North One Helps Keep Startup Costs Low

Managing finances effectively is crucial for keeping startup costs under control. North One offers an affordable, easy-to-use banking solution tailored for sole proprietors, helping new business owners track income, manage expenses, and streamline cash flow.

With low fees and no hidden charges, North One ensures that sole proprietors don’t lose money to unnecessary banking costs. Plus, automated budgeting tools allow you to set aside funds for taxes, marketing, and other expenses, keeping your finances organized from day one. And, seamless integrations with accounting software make bookkeeping simple, reducing the need for expensive accounting services.

For sole proprietors looking to maximize profits while keeping overhead low, North One provides a smart, cost-effective banking solution designed to support business growth.

Planning Your Sole Proprietorship Budget

Starting a sole proprietorship is one of the most affordable ways to launch a business—just make sure you understand (and plan for) startup costs. While expenses like business registration, licensing, and marketing can vary, keeping costs low with strategic budgeting and smart financial management will help you stay profitable from the start.

Ready to take control of your business finances? Open a North One account today and keep your startup costs low while setting your business up for success.