Many individuals with a dream and an entrepreneurial spirit set out to start their own business. That dream can quickly turn into a nightmare if you don’t have the financial resources to keep the business running. The first thing every entrepreneur should do is get educated about the costs that go into running a business. A good budget helps, but there are many hidden costs of running a business that can quickly run you into the red. These overlooked items include:
1. Permits, Licenses and Dues
It all starts with paper – the permits and licenses you might need to do business in your community. These are rarely one-time expenses. Factor in how often they need to be renewed and what the renewals will cost. You should also set aside a little money for membership dues with networking organizations like your local chamber of commerce or industry/professional groups. Participation in these groups can keep you up-to-date on the latest news and can provide you with great exposure, but be selective about the groups you join because annual memberships can easily run hundreds of dollars. How to save money: As an extra perk for members, many of these organizations provide their members with various kinds of business-related discounts on items such as insurance, loans, credit card fees, supplies, training and more. If you can’t afford to join a group, you may be able to attend some of their events at a nominal fee as a guest.
2. Office Space and Utilities
The idea of a dedicated office goes hand-in-hand with the birth of a small business, but do you need the space? A home office can work for many start-ups, but zoning and other regulations might require you to have something more official. Before renting office space or purchasing property, think about how much space you need now and what you’ll need once your business starts to grow. Does your business require more than a home office can provide? Will temporary office space work? How to save money: Temporary office space, like that offered by companies such as Regus, Liquid Space and Share Desk, can be a great option, especially if you’re not sure of what the future will hold. These arrangements often include office equipment, Internet access, receptionist services, and meeting space that are shared among all the leasing businesses. Utility costs can also eat into your budget. Leased spaces often include these costs as part of the agreement; however, things can be a little tougher if you’re on your own. Look into utility providers that offer options such as flex-pay, competitive rates or budget billing, and energy audit programs that can help improve your business’ energy efficiency and offset the cost of improvements.
3. Equipment, Maintenance and Upgrades
The tools you need for your small business to create a product or run a service should be known to you, but smaller equipment costs can be forgotten in the mix. Remember to include basic office equipment in your budget, items like computers, copier, paper, scanner, desks and chairs. How to save money: Second-hand and discount sites such as eBay, ROE and Overstock can lead to big savings on these purchases, as can government auctions and surplus sales. Don’t jump to buy the latest model if you don’t need it. A cell phone that keeps signal and holds a charge is worth more than an upgrade that offers no significant improvements. However, you should plan to upgrade or replace computer equipment on a regular basis. A laptop has a functional life expectancy of five years, and planned obsolescence, an intentional limit to a product’s usefulness, cuts that span to less than half. Most major electronics retailers such as Best Buy offer protection plans for around $50 for two years of maintenance. Compare that bill with the total cost of ownership, which can easily run $8,500 annually per PC. (Total cost includes direct costs such as hardware, software, operations and administration and indirect costs such as end-user operations and downtime.)
4. Employees and Benefits
The people that help your business run significantly impact its potential. Salaries, personal and medical leave, health insurance and training costs factor into the budget. Failing to invest properly in your employees, providing a living wage, a clean environment, office perks and other benefits can lead to high employee turnover. Furthermore, it costs about one-fifth of a worker’s salary to replace that person when they leave. In some industries that cost is even higher.
These will be the most important checks your business will write every month. At minimum, you will need both employer liability and public liability coverage. It’s also a good idea to carry insurance for negligence, property, illnesses and injuries. How to save money: Don’t be afraid to negotiate with your insurance providers. If you’ve got a good record, they’ll want to keep your business, which will encourage them to find as many “discounts” as possible. It’s also a good idea to periodically review your coverage to see if it still meets your business needs. If something needs to change, talk to your provider and other insurers to get the best rates and best coverage.
Shrinkage refers to a loss of inventory at some point between its purchase from your supplier and its purchase by your customer. According to Fortune, retail shrinkage cost U.S. retailers approximately 1.4 percent of their total sales – roughly $32 billion per year. No one plans to lose inventory, but causes for shrinkage can include short shipments from a vendor, picking errors that lead to customers receiving more than they ordered, damaged goods, or theft.
7. Payment Delays
Lost revenue from shrinkage isn’t the only financial pitfall that can hit small businesses. The books suffer when demand gets fulfilled but payment gets delayed. Customers forget to mail the check. Banks hold transactions over a certain amount. Holidays cause payments to post later than expected. Your payments, on the other hand, never seem to miss a date. Payment delays can seriously hurt your financial bottom line, especially when payments are expected or necessary to cover costs. Bounced checks and overage charges chip away at your credit rating. Limited funds can force you to decide which bills to pay.
Your time is (a) valuable resource, and you can’t afford to waste it. Are you spending too much time and energy on business tasks that could be farmed out or delegated to another employee? Are you neglecting yourself, friends or family? The opportunity cost can be too high if you’re constantly putting out fires or balancing books instead of focusing on your well-being and personal relationships.
9. Professional Services
Legal and accounting fees can run into thousands of dollars annually, but these specialists can save you money and time. Legal professionals can untangle red tape. Accounting specialists can translate tax codes, help maintain accurate payment and inventory records, and find grants to help fund your endeavors. How to save money Negotiate with these professionals to keep fees manageable.
10. Credit Card Fees
Can customers buy your product or service with a credit card? Depending on the credit card used, you should expect to pay roughly 3 percent of total charges in vendor fees. Small businesses also need to very careful about using credit to finance expenses or provide cash flow. If you can’t pay your full balance each month, you can easily accumulate unmanageable debt due to late payments, high interest rates and continued reliance on these accounts. How to save money Every credit card company charges different vendor fees, so do a little research on current rates and find the companies that offer you the best service and best rates.
Source: Wasp Barcode Technologies