More and more people are getting into the business world through their own startups. Many of the companies you interact with on an everyday basis – Uber, Airbnb, even Apple – began as startups, often with just a few employees. While the stereotype may be that all startups are in either the Bay Area or New York City, they’re actually all over the country. Some cities, though, are more affordable for startups than others, and knowing which ones they are can help you avoid dipping too much into your savings to fund your venture at its outset. SmartAsset analyzed data from 80 cities across the country to determine where it is most affordable to found a startup.
To rank the cities, we looked at the following metrics: filing fees, office space rentals, utilities, legal and accounting fees and payroll for five employees. For details on our data sources and how we put the information together to create our final rankings, see the Data and Methodology section below.
This is SmartAsset’s fifth annual look at startup costs. Read the 2018 version here.
Key Findings
- Your best bet is down South. All but one of the top 10 cities in this study (Wichita, Kansas) are located in the South. Tennessee in particular claims three cities in our top 10 and four cities in our top 25.
- Don’t start with the coasts. The bottom 10 cities in this study include larger coastal cities such as San Jose, California; San Francisco, California; Washington, D.C.; New York, New York and Seattle, Washington. These cities may be where a lot of your favorite startups are, but they are expensive, so it might be wise to consider other options as you decide where to base your startup.
1. Chattanooga, TN
For the fifth year in a row, Chattanooga, Tennessee takes the top spot on this list. The estimated total cost of creating a startup in this city is $241,901. According to BLS data, the average payroll is especially low there. The estimated cost of hiring five full-time employees at the median annual salary is $219,440, the lowest amount in this study. The average cost of utilities for a 1,000-square-foot-office in Chattanooga is $1,998 and the average cost of licensing fees for LLCs and corporations there is $207.
2. Wichita, KS
The No. 2 city in our study is Wichita, Kansas, where average startup costs are $243,325. The payroll costs for five full-time employees at the median annual salary is $222,456. Filing fees in Wichita are $128, and the average price of office space is $16,085. Utility costs there are $1,734, the second-lowest rate for this metric in our top 10.
3. Greensboro, NC
Coming in third place, Greensboro, North Carolina has an average startup cost of $246,573. That includes an average payroll cost of $222,872 for five full-time employees at the median annual salary. Legal and accounting fees in Greensboro total about $3,509, the third-lowest amount in our top 10 and the seventh-lowest in the study overall. The average cost of utilities for a 1,000-square-foot office is $1,608.
4. Columbia, SC
The list moves farther down the coast to the fourth city in our top 10, Columbia, South Carolina. The average startup cost in Columbia is $246,833. Payroll costs for five full-time employees at the median annual salary are $223,392. Utilities cost $1,801 on average, while office space runs at around $17,811.
5. Little Rock, AR
The No. 5-ranked city on our list is Little Rock, Arkansas, with average startup costs totaling $247,787. This includes average payroll costs of $225,160 for five full-time employees. Legal and accounting fees run around $3,196, the second-lowest amount for this metric across our top 10 and third-lowest across all 80 cities we considered in the study. Utilities cost on average $1,749 for a 1,000-square-foot office. Filing fees in Little Rock are the lowest in our study, at just $45.
6. Lexington, KY
Lexington, Kentucky, ranks sixth in our study and is the first of two cities located in the Bluegrass State to place in the top 10. It costs on average $248,909 to found a startup here. That includes average payroll costs of $224,536 for five full-time employees. Filing fees in Lexington total less than $100. The average cost of leasing a 1,000-square-foot office is $18,707.
7. Knoxville, TN
Knoxville is the second of three Tennessee cities to rank in the top 10. The average startup costs in Knoxville total $249,497. The average payroll costs for five full-time employees at the median annual salary come out to $225,680. The average costs of legal and accounting services are $3,899, ranking second-highest in our top 10 and within the top 30 overall. The average cost of office space is $17,713, which is the fourth-lowest amount in our top 10 and seventh-lowest overall.
8. Memphis, TN
The third of three Tennessee cities in our top 10, Memphis ranks eighth overall and has average startup costs totaling $249,552. Average payroll costs for five full-time employees total $223,080. The city’s filing fees come to $207 and the average cost of leasing a 1,000-square-foot office there is $20,609.
9. New Orleans, LA
Our No. 9 city with the lowest startup costs, New Orleans, Louisiana, has average startup costs totaling $250,788. That includes average payroll costs of $224,328 for five full-time employees. Legal and accounting costs total $3,900 on average and office space runs around $20,609 (both the highest amounts in our top 10, but top-30 rates overall).
10. Louisville, KY
The final city in our top 10, Louisville, is the second Kentucky city to make the list. Average startup costs there are $252,507. The average payroll cost is $228,696 for five full-time employees. Legal and accounting fees total $3,561 on average. Utilities and office space lease for a 1,000-square-foot space average $1,939 and $18,216, respectively. Louisville filing fees tie for second-lowest in our top 10, at $95.
Data and Methodology
To find the cities with the lowest startup costs, we compared 80 cities across the following metrics:
- Filing fees. This is the average cost of licensing fees for LLCs and corporations. Data comes from bizfilings.com and is from August 2019.
- Office space. This is the average cost of leasing a 1,000-square-foot office. Data comes REIS Inc. and is for 2016. We projected a 3% annual increase in the price per square foot for office space in each city to reflect 2019 prices.
- Utilities. This is the expected cost of electricity and gas for a 1,000-square-foot office, according to local rates. Data comes from the Energy Information Administration.
- Legal and accounting fees. On a national level, we estimated startups spend $1,000 in accounting fees and $3,500 in legal fees in their first year. We estimated the number of hours of work these sums would equal for the average accountant and lawyer on a national level. We then arrived at our local costs by multiplying those hours worked by average local hourly pay for accountants and lawyers based on 2018 Bureau of Labor Statistics data.
- Payroll. This is the cost of hiring five full-time employees at the median annual salary in a particular city. Data comes from the Bureau of Labor Statistics and is for 2018.
In order to rank the cities, we added up all costs for each city. The city with the lowest overall costs ranked first and the city with the highest overall costs ranked last.
Tips on Managing Your Money
- Big-picture financial vision. Deciding to run a new business involves factoring in a lot of expenses, many of which will come from your own pocket at first. Getting a personal financial advisor can help you manage your own money as well as your startup’s. Finding the right financial advisor that fits your needs doesn’t have to be hard, though. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- Relocation considerations. Looking to buy a home in the city where you found your startup? Get a sense of what you might be paying each month with our mortgage calculator.
Questions about our study? Contact press@smartasset.com
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