Owning a business is like a mix of running a marathon and being dropped in the wilderness with only your wits to survive. There are risks around every corner and many hidden perils to the health of your business. Only 50 percent of small businesses survive past the five-year mark. The biggest cause of going out of business? Cash flow issues. While many new companies turn to bridging loans to manage their cash flow problems, they do not always succeed. On the other hand, figuring out what the hidden costs of owning a business are helps you avoid similar issues. It also may give you the small edge you need to make it through the hard times. In this post, you will learn the top hidden costs of owning a business.
Maintenance And Upgrades
Even if you lease the space for your business, basic upgrades are a natural part of business growth. Whether you need to fix machinery that goes on the fritz or you simply want faster computer systems, you’ll have expenses with the day-to-day running of a business you may not have counted on. It’s also nearly impossible to predict how much maintenance and upgrades might cost, so your best bet is to have a maintenance fund in your budget and set a little aside each month to cover repairs.
If you want a successful business, you must hire the best employees possible and train them thoroughly. To attract top employees, you need to offer a decent salary and benefits package or they’ll go elsewhere. However, you also must keep those employees once you invest money into hiring and training them.
The cost of turnover varies, depending upon whether the position is entry-level and how much training your business invested in the employee. Developing a strong company culture and ensuring employees are happy in their roles helps reduce churn and saves your company money. At the same time, prepare for any employee to leave at any time, meaning you may need to invest in a replacement.
Some businesses use more paper products than others, but no matter what type of business you run you may need to print invoices, unpack products and shuffle paper around. Sure, you can recycle and reduce the negative impact on the environment, but you still need to buy printing products to start with. It may not be a line item on your budget, but the cost of supplies can quickly add up. When possible, buy in bulk for the best pricing. Reduce paper usage and go with digital when it makes sense. Some items which can be recycled include receipts, catalogs, paper bags, copier paper and envelopes.
As a small business owner, you’ll need insurance to cover the cost of your assets if a natural disaster occurs. You should also invest in an umbrella policy to protect you in case someone slips and falls and sues or some other issue. Typical property insurance only covers so much for personal injury. Talk to your insurance agent about your budget and how to fully protect yourself without breaking the bank. You should also gather new quotes every year or two and seek out the best deal possible from reputable insurance companies. Moreover, track small business insurance trends to gain insight into new policies that business owners are getting.
Over half of the world’s population is online, which makes online marketing a business necessity. If you don’t market online, you miss out on connecting with a big portion of your customer base. Even local businesses should advertise on the Internet because people often start their searches for a local business via their smartphones.
When it comes to online marketing, you may feel uncertain about how much of a budget you need. Some things are free and simply take some of your time to implement, such as posting to social media. On the other hand, figuring out online advertising is tricky and you can waste a lot of funds on ads that gain zero traction. Budget a portion of your income to marketing and track results on all your efforts to find what works best for your brand.
Whether you’ve extended credit to other businesses, work in the service industry where you get paid after work is completed or started a line of credit for your biggest customer, at some point, you’ll run into a person who doesn’t pay their invoice either on time or at all. Unpaid invoices negatively impact companies’ financial statuses. For instance, a lack of money flowing in creates serious cash flow issues for freelancers and small business owners.
Your first step should be picking up the phone and touching base with those who haven’t yet paid. The late payment could just be an oversight, but at least you’ll have an idea of when you might expect payment. Use a service and send invoices on a regular schedule along with reminders. Make it easy for your customers to pay you in a variety of ways including ACH and via credit card.
For retailers, shrinkage refers to the loss of product between when you buy it and it leaves the store. Shrinkage is sometimes due to theft and sometimes inventory control issues. The cost of product loss costs U.S. retailers billions of dollars a year. Tracking inventory is your first line of defense as well as awareness of how shrinkage occurs. A strong point of sale (PoS) system shows you where inventory is at any given time and helps track sales. You should also be aware of employee theft and customer theft and put security measures in place to prevent thieves from stealing your business away from you.
As a small business owner, you’ll need an accountant and possibly an attorney. These costs can run into thousands of dollars and aren’t always considered when people start their new company. Even though paying for professional services is a big investment, you’ll save time and money in the long run by not paying fines or running into serious legal issues. Ensure that you hire a licensed accountant who met all of the CPA certification requirements. Likewise, find an attorney who has a great track record.
Save money by talking to your CPA and attorney about your budget and ask which tasks can be farmed out to their support staff at lower rates. Inquire about how you can keep your bill manageable while your business grows. Seek out people who specialize in working with small business owners.
If you have employees, you’ll have to hold out payroll taxes and send those to the government each quarter. You’ll also need to pay your own quarterly taxes. Business owners sometimes mix their tax withholding in the same account as general funds. If you accidentally spend that money on expenses, you’ll take a hit if you’re late paying your tax bill and incur fines. A smarter approach is having a separate account where you keep your tax payments so you can simply pay the bill when it comes due. You can also make multiple payments and pay more frequently if that works best for you. It does make filing taxes a tiny bit more difficult, but only because you have to enter all payments.
Keep an eye on the thermostat temperatures in your workspace. Not only can temperature impact productivity as people struggle with being too hot or too cold, but costs to heat and cool a building add up. One way of ensuring your electric bills are more predictable is by installing smart thermostats and putting motion detection lights in bathrooms. Small changes make a big impact over time and if you struggle with cash flow, a few extra dollars may mean the difference between success and failure.
Now that you know some of the hidden costs of running a business, budgeting becomes easier. However, it’s impossible to predict every situation that might occur. Adding a miscellaneous or emergency fund gives you a bit of flexibility when those unexpected expenses crop up. With an eye toward detail, you can keep costs under control and focus on building your brand.