If you own a small business, limiting your costs is just as important as maximizing your revenue. You can’t afford to make mistakes in what you invest into the business and in projecting your costs. While most would-be entrepreneurs know about some costs, like salaries, and equipment costs, several expenses are not as well known.
If you don't consider all of your possible costs when making your projections, you could find that your revenue is not keeping up. When crafting your business plan, you need to factor in every possible expense to be accurate. Here are some hidden costs of starting a small business that you might not know about but need to consider.
Permits and Licenses
Depending on your type of business, you will need permits and licenses to operate legally. For example, you will need a liquor license to serve alcohol. You may also need a permit from your local municipality to operate your specific type of business in the area you want to set up. You may also require certification from a professional organization for particular trades, such as electricians or plumbers. Some of these costs are not just one-time expenses. They may renew every year, and you will need to include them in any financial projections you make. You may also need to pay legal fees for some of these expenses, especially when dealing with a municipality.
Employee Costs
You probably know that if you hire people, you will have to pay their wages. However, there are other costs involved with having employees. For instance, you may want to offer benefits to entice the best possible talent to work for you. You will also need to factor in taxes and workers’ compensation coverage. A reasonable estimate is that you will pay
Business Insurance
You should never start a business without already having insurance in place. It is essential to keeping your business safe against any possible risks. Even one lawsuit can cause catastrophic financial problems for a small business. You don’t even need to have done anything wrong for someone to sue your business. If you have employees, you will need workers’ compensation insurance. Not only is it the right thing to do, but it is also required in every state but one. There are also possible risks from damage to inventory and property or from getting in a car accident. Insurance will help you mitigate the financial damage and keep your company afloat.
Inventory Losses
There are several ways that your inventory might shrink. You could be a victim of theft, bad weather, or accidents in your warehouse or shop floor. Retail shrinkage costs the economy
Taxes
When you work a 9-5 job, you know that taxes are taken off your check. You may not even think much about them. However, as a business owner, taxes will be a big part of your expenses. There are payroll taxes, property taxes, taxes on your purchases, and taxes on your revenue. You need to ensure that you put aside enough to pay your taxes during the year to avoid any possible penalties. It’s not like your old day job where your employer took care of a lot of the work. When you run a business, the responsibility is yours.
Delays With Payments
If you have an invoice-based business, you need to account for the delays in getting your payments. When you send an invoice, your clients will have a certain period to pay it. During this time, you will still need to pay your bills, such as utilities and wages. While these aren’t hidden additional costs, you need to make sure that you have the money to cover those periods between payments. If you start to get behind on your bills, you could be subjected to late fees, interest, utilities being turned off, and even lawsuits. In your projections, give yourself several months of a financial cushion so that you can better handle your cash flow and bill payments balanced with revenue.
Professional Services
As you lead up to launch and beyond, you may require the services of professionals to help you with specific tasks. You may need help from lawyers or accountants, for example. Accountants can help you understand the tax codes that apply to your business. A lawyer can help with your permits and make sure that everything with your business is legal. You may need a human resources specialist to help set up job descriptions and manage your staff. All these are costs that you should have on your projections as you will need those services before you launch and as issues arise over time.
Running a business is all about getting the best return on investment. That’s why understanding your costs is so important. The higher your expenses are, the more revenue you need to bring in. If you don’t have a good handle on your costs, you may be undercutting yourself with your revenue projections. Without factoring in everything, you will be operating your business in the dark without a true sense that you need to make a profit. Take these hidden costs into account so you can run your business effectively and achieve the growth you want.