Starting your own business, regardless of its size and reach, is already hard enough as it is. Keeping it afloat, on the other hand, is an entirely different matter altogether that is not made easy if one is unaware of the hidden costs.
The secret lies in careful research and planning in order to become aware of the expenses that are commonly overlooked every once in a while. Should you find yourself in the position of potentially facing business bankruptcy because of the compounded effect of these outflows on your business budget․
Know that there are small business loans out there that you can apply for and certainly help your business survive. In the meantime, let’s talk about the most common “hidden costs” so that you can prepare for them as early as now, in order to avoid a crisis from happening altogether. These are:
- Research expenses
- Permits and licenses
- Business insurance
- Payment delays
- Credit card-related fees and expenses
Of course, there are still a lot of other unexpected expenses that can throw you off your game out there, but the ones that we have mentioned above are the most common ones and all certainly easy to manage. Let’s get started!
1. Research Expenses
The first commonly looked item in terms of expenses is research. A lot of new business owners are not fully aware of the importance of research prior to launching their startup, and even more of us are quite unsure how much research is needed or “enough”.
At the very least, here are the information that you want to unearth during your research:
- The viability of the business idea
- The current demand for the product or service (or lack of it)
- The current competition (or lack of it)
- Your specific niche, sub-niche, and target market
Remember, careful research is crucial in order to develop a solid business plan.
2. Permits And Licenses
Most of us are already aware of the permits and licenses needed in order to start, but the related factor that can be easy to overlook is the fact that these are not one-time fees. They need to be renewed every year.
Don’t forget to take into account the various networks and organizations that you also want to sign up for like your local chamber of commerce and other professional groups related to your niche or industry. Those have recurring membership fees as well.
3. Business Insurance
Another business expense that can be easily overlooked is business insurance. Sadly, though, what some of us might not realize (or realize too late) is that insurance is not optional. Business insurance is a need and should be considered as part of the initial capital.
There are different types of insurance programs that you can get for your business, but the ones that we recommend you to consider are:
- General Liability Insurance
- Professional Liability Insurance
- Business Interruption Insurance
- Company Vehicle Insurance
- Worker’s Compensation Insurance
And more. The number of business insurances that you need will depend on the size and nature of your operations.
4. Payment Delays
There are different circumstances that can cause payment delays, from delayed payments, late payment posting due to a bank holiday, or even technical issues with your payment methods and late remittances.
A lot of things can happen. The problem arises, though, when you heavily rely to get money on time, and the moment that you don’t receive it, it starts a cycle of delays and even more expenses typically from unforeseen interest rates.
There are ways in order to avoid this issue. First of all, it is ideal to always give yourself some wiggle room for every expected inflow and outflow. You can also come up with brand new payment strategies in order to receive your payment faster or upfront. Finally, set up an emergency fund account so you have a financial safety net that you can tap into in case of need. At the very least, it should be able to cover your employees’ salaries, your rent, and utility bills.
5. Credit Card-Related Fees And expenses
Having a credit card as a business owner can provide a lot of conveniences. It can even offer you a way out to avoid the repercussions of delayed payments that we have mentioned a while ago.
What we can easily miss, though, is the fact that every credit card transaction comes with a fee that is usually 3% of the transaction total. There are credit card companies that offer lower fees, but such expenses are, in the end, unavoidable.
What’s worse is that, since these expenses are relatively small and “invisible”, they can still build up and accumulate in time. The safest thing that you can do is to resist using your credit card for business expenses as much as possible. And be sure to include the transaction fees into your accounting.
Finally, there’s shrinkage. Shrinkage refers to the inventory loss in between receiving your products from your supplier until it reaches the customer. It is a normal part of the business cycle, especially in the retail industry.
A lot of things can cause shrinkage. Some of the most common culprits are unaccounted incomplete deliveries from your supplier, shipment loss on the way to your customer, damaged goods, and even theft.
There are unavoidable circumstances that cause shrinkage, but there are two ways in order to minimize the damages as much as possible. First, pay special care in checking deliveries received. This will prevent you from receiving damaged goods and of course, make sure that you get all the items you have ordered. And second, implement an inventory management system in order to help you stay on top of your supply and even prevent theft.
The Bottom Line
There are various hurdles that can hinder you from maximizing the profitability of your business, but don’t let hidden costs be one of them. Identifying what these hidden costs are is like finding the leak that causes your water shortage. It is the first step in minimizing its damage and making these issues more manageable.
The good thing is, most of these hidden costs can easily be avoided and prepared for. There are also ways in order to prepare for them in advance so that it won’t bother your cash inflow should they unexpectedly arise.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.