A lot of us individuals have a dream, an entrepreneurial spirit inside us that’s pushing us to start our own businesses. Unfortunately, for a lot of us, this dream often turns into a nightmare when the finance part isn’t very strong.
One of the very crucial things that an entrepreneur should do is learn about the costs of running a business. I am not talking about the startup costs, I am talking about running cost. When you have a fixed budget, it is easier to get things done. But if you do not put into consideration the hidden costs, your business is sure to go downhill very soon.
In this article, I’ve mentioned the top 10 hidden costs of running a small business :
1. Dues, Licenses, and Permits
Everything in a business starts with a piece of paper. In order to run a business, you’ll need a license, and permits ( if applicable ). Usually, these are one-time expenses. But some of them need renewals. Do your maths beforehand about how often they’ll be renewed and how much each renewal costs.
You also need to save some money for membership if you’re going to join local industry groups. These groups help you grow and be up to date with the news. They also help you get more exposure and experience. But, you don’t need to join every other networking group. Some will cost hundreds of dollars and might not provide any value.
2) Office Space & Utilities
If you start a small business, you’ll need a dedicated space in order to manage it properly. A home office can work for certain type of startups, but when you have to be more official and take things next level, you’ll need more permissions from authorities and hence move to an office space.
Before you rent out an office space, spend some time calculating how much space do you actually need, can you manage it from your home, are their maintenance charges, do they provide with water etc. Often, you’ll be good in coworking space as well.
3) Maintenance, Upgrades & Equipments
When you run a business, you’ll need a bunch of tools in order to save time and money. Usually, big equipment and tools are noticed, but people forget small tools in this process. You need to include every small thing like a chair, mouse, LAN wires and more.
4) Employees and Benefits
The people you hire to run your business have a *HUGE* impact on your potential. Thereby, you have to treat them with care by providing them benefits like health insurance, medical leave, and more. You also have to put into consideration things like training costs and things they’ll need every day.
If you fail to treat your employees properly, by not being able to provide them living wage, office perks, a clean and pleasant office environment, it will lead to people leaving your office very frequently, thereby hiking up costs of hiring and training people every now and then.
Insurance falls among one of the most important cheques your business will have to give out every month. To meet bare minimum, you’ll need public liability and employer liability coverage. You also need to worry about insurance for property, injuries, illness, and negligence.
For those who’re not familiar with the term, shrinkage refers to any loss of inventory from purchase from supplier to purchase by customers. According to a research by fortune, retail shrinkage often costs 1.4% of total sales. To put this into numbers, roughly $35 billion every year.
No business certainly wants to lose their inventory, but there are tons of factors that are responsible for this, these include (but not limited to ) theft, damaged goods, a customer getting more than they ordered, pickup errors, or short shipment from the vendor.
7) Delayed Payments
By far, you’d think shrinkage is the only thing that can affect your business. A lot of business also suffer when their payments are delayed. A lot of times customers forget to check their emails, a lot of times banks hold transactions, sometimes delay is caused due to payments getting late due to holidays. Although, your expenses never miss any date. Monthly rent, needs to be paid by month end.
Delay in payment results in serious damage to the finance of a business. Especially because payments are necessary in order to cover up expenses. Overage charges, and bounced checks also reduce your credit ratings. A lot of times, limited funds also make you question which bills to pay and which to take a chance on. Regardless if you’re getting paid or not, you still have to deal with insurance, payroll, and other expenses.
Time is Money. A quote that I mentioned in my previous article about time tracking apps for freelancers. If you’re spending too much time on something that can be done by an employee or simply outsourced for cheaper, it is going to affect your business. You can miss a lot of opportunities if you constantly balancing books rather than talking with clients and bringing more work.
9) Professional Services
Accounting and legal fees also have potential to burn thousands of dollars annually. At the same time, they help you save time and money. Accounting professionals how to save money in taxes, they help you maintain inventory and payment records. There is a very thin line between wasting, and actually saving money in accounting and taxes.
10) Credit Card Fees
Do you offer credit card as one of the payment options?
Depending on what credit card provider you are using, they charge roughly 3% of total sales as vendor fees.
This is why small business has to extremely careful when it comes to financing or credit. If you aren’t capable of paying the balance each month, you will easily accumulate unmanageable debt because of high-interest rates, late payments and much more.