The Research

How much does it cost to start and run a small business? How much should you budget for equipment like laptops, printers and security cameras? And what can you do to improve your chances of success as an entrepreneur? Here at LMI, we’ve done the research to help you answer these questions, and we can offer data-driven strategies to help you take your small business to the next level.

The Path to Profit: A Quick Guide to Reducing Your Technology Costs

Running a small business has never been easy — but these days, it’s more challenging than ever. Consumer spending is on the decline.¹ Margins are shrinking, with 75% of small business owners reporting a rise in the cost of their supplies, but only 40% raising their prices.² And the odds of long-term success remain daunting, with 49.7% of U.S. businesses failing within the first five years.³ 38% of businesses fail because they run out of capital.⁴ They end up spending more than they expect, especially when it comes to technology. And technology is never a one-and-done cost: many tech assets are deliberately designed to have a very short lifespan, a practice known as planned obsolescence. When your hardware wears out — sometimes in as little as 1 or 2 years — you could be stuck with another capital outlay similar to your startup costs. And every time you have to troubleshoot a tech issue, you’re taking time away from your business to deal with upgrades, replacements, maintenance and repairs. That’s why it’s essential for small business owners to keep their costs low so they can remain resilient in a tough business climate. In this guide, we’ll reveal some of the trends impacting today’s small business owners. We’ll explore how much you should budget for equipment like hardware and software. And we’ll share tools and insights to help you stretch your capital so you can increase your chances of long-term success.

What Does It Cost to Run a Small Business Today?

On average, new business owners spend $40,000 in their first full year.⁵ This number can vary widely based on industry: for example, a new restaurant costs $375,000 on average,⁶ while the cost of opening a cannabis dispensary can be as high as $2 million.⁷

Bankrate reports that many other industries land closer to the $40,000 mark. For example, the average cost of opening a new retail business is $39,210, while the average cost of opening a construction business is $37,390 and the average cost of opening an art business is $32,960.⁸ No matter what industry you’re in, it can take two to three years to break even — in part because you’re likely to face a never-ending onslaught of unplanned expenses, fees and repairs.⁹

These costs can be broken down into seven basic categories: rent, utilities, insurance, marketing, merchandise, people and technology. For the purposes of this guide, we’ll focus specifically on technology, and we’ll share best practices for keeping your tech costs predictable and manageable so you can turn a profit faster.

How Much of Your Budget Should You Spend on Technology?

Your biggest tech costs might include a robust point-of-sale (POS) system and a security system to prevent burglary and theft.¹⁰ These items may constitute about 10% of your total budget for the first year, or $4,000 on average as a startup line item.¹¹ Of course, this number could be much higher, especially in segments where theft, liability and compliance are major concerns. Anyone running a cannabis dispensary, for example, should expect to pay at least $65,000 to set up, manage and maintain security equipment.¹²

That’s why more and more small businesses are reclassifying some of their capital expenditures (CapEx) as operating expenses (OpEx). In certain industries, this has always been standard practice: in the transportation industry, for example, much of the necessary equipment is leased, which drastically reduces the need for capital.

A similar strategy could work for your business, too. The fact is, most small business owners don’t need to own their own equipment. Today’s entrepreneurs can gain a true competitive advantage by outsourcing nearly every aspect of tech procurement and maintenance so they can devote more time and energy to what they do best.

Reducing Your Capital Expenditures with Technology as a Service

Many forward-thinking entrepreneurs are shifting their tactics and adopting Technology as a Service (TaaS) model to unlock the OpEx advantage for their small businesses.

The “as a service” model has become increasingly popular in recent years. In fact, Software as a Service (SaaS) is so ubiquitous that many consumers don’t even realize that some of their favorite applications are delivered “as a service.” Netflix, for example, is a SaaS provider because it delivers on-demand videos over the Internet on a subscription basis. Microsoft 365 is another example because it enables users to access a full suite of productivity tools through a web browser for a flat monthly fee. Other notable SaaS offerings include accounting software like QuickBooks, online graphic design tools like Canva and web conferencing apps like Zoom.

These services are popular because they’re simple, flexible and cost-effective. TaaS delivers a very similar value proposition by offering enterprise-grade hardware and tech services at one flat rate, enabling you to avoid expensive tech purchases with a bundled set of products and services installed, monitored and maintained by a team of seasoned professionals. These services might include voice, Internet, phone, digital signage, POS, physical security and more.

You should be wary of any provider who forces you to buy a fixed bundle with features or products that you don’t need. TaaS is most effective when it is flexible. A truly modern TaaS provider should be able to bundle the right combination of products and services into one flat-rate subscription, then handle all of the maintenance and repairs so you can put your valuable time and energy elsewhere.

Data from the Field: How TaaS Delivers Real Value for Small Businesses

Here at LMI, we’ve done the legwork. We’ve run the data. We’ve talked to entrepreneurs from every industry. And based on our research in the field, we believe that TaaS is the most sensible, scalable, cost-effective model for the vast majority of small business owners.

By reducing your initial investment in technology, you can get the flexibility you need to become more profitable in less time. You can avoid unnecessary headaches and unexpected expenses. And best of all, you can focus more time and attention on what matters most.

¹U.S. Bureau of Economic Analysis, January 27, 2023.
²CNBC | SurveyMonkey Small Business Index Q2 2022.
³LendingTree, “The Percentage of Business That Fail and How to Boost Your Chances of Success,” May 2, 2022.
⁴CB Insights, “The Top 12 Reasons Startups Fail,” August 3, 2021.
⁵Shopify, “How Much Does It Cost to Start a Business?,” November 8, 2022.
⁶Bankrate, “Average Cost of Starting a Small Business,” November 8, 2022.
⁷Embroker, “How Much Does It Cost to Start a Dispensary or Cannabis Business?,” February 20, 2023.
⁸Bankrate, “Average Cost of Starting a Small Business,” November 8, 2022.
⁹FreshBooks, “How Long Does It Take to Be Profitable? A Guide for Small Businesses,” March 23, 2023.
¹⁰Square, “How to Start a Retail Business,” January 4, 2023.
¹¹NerdWallet, “14 Business Startup Costs Business Owners Need to Know,” December 16, 2020.
¹²Embroker, “How Much Does It Cost to Start a Dispensary or Cannabis Business?,” February 20, 2023.

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