A lot of entrepreneurs make the mistake of underestimating their business costs, especially when starting their first endeavor. Aside from rent, supplies, equipment, labor, and all the obvious stuff, there are many hidden costs of starting and running a business that, unfortunately, a lot of business owners tend to overlook.
That said, do due diligence and find out exactly what costs you should expect when you finally start preparing for your business. Here are some important expenses that you may be forgetting to factor into the budget:
1. Permits and licenses
Before you can become operational, you would need to secure permits and licenses from your state and local government. Some are one-time expenses; others may be not. Most permits and licenses need renewals at specific intervals, depending on the policies in your locale. Hence, you need to factor in not only the initial costs of these papers but also the costs of the renewals.
2. Third-party advertising
Most small businesses do their marketing themselves. While taking on the marketing on your own is certainly not a bad thing, it may not always result in efficient use of your resources. For one, building a brand image from scratch can be extremely difficult to do. More than that, unless you have the talent and skills that you need in-house, you would probably need to hire a third-party marketing and advertising firm to help you create the most resonant and cost-efficient campaigns.
Hiring a third-party company is not always cheap, but it is an excellent investment to make during the first few months of your business. Not only will it help you gain traction during the early stages of your business, but you can also learn a thing or two from working with a specialized team of marketing professionals.
3. Repairs and maintenance
Even if you buy brand-new equipment for your business, there is no guarantee that they will not need maintenance in the first few months or even weeks of operations. Some business owners make the mistake of ignoring repair costs when setting operational budgets, thinking that their equipment is unlikely to need maintenance any time soon. However, this kind of mindset may be just the thing to have you ending up in a tight spot when a piece of vital equipment fails. And it is often worse when you have to replace it completely when repairs are insufficient.
4. Employee benefits
When calculating labor costs, factor in employee benefits as well, not just the salary. Don’t forget to include taxes and perks, too, as these expenses can run higher than you expect when you start hiring more people. If there is a big difference between what you expect to pay and what you actually need to pay, you may find yourself in a tight financial spot in the future.
Shrinkage occurs when there is a loss of inventory at a certain point between its purchase from the supplier and its purchase by the customer. There are plenty of causes for this, such as employee theft, errors in paperwork, shoplifting, and supplier fraud. It is a pervasive risk for businesses that sell physical products but is not exclusive to retailers, and it costs businesses billions of dollars every year.
Although it is impossible to eliminate the risk of shrinkage completely, there are many ways you can avoid the factors that cause it. Being proactive is the key. For example, you can set additional security measures to prevent shoplifting and pilferage, two of the most common causes of inventory shrinkage.
6. Legal fees
Not many business owners expect to pay legal fees right off the bat—or at any point in the future, for that matter. But keep in mind that there is always a risk of a lawsuit, regardless of the size and type of your business. More than that, navigating the business laws in your locale can be difficult to do without an attorney.
That said, it is highly advisable to have a budget set aside for legal fees. Small businesses are often the target of lawsuits since they are less likely to litigate, and most usually settle for less than $5,000. But even if the settlement is just $1,000, it can have a significant impact on your business’ financial health
Doing due diligence and making the utmost preparations can help your small business go past its first year. And one of the best ways to ensure that you are highly prepared is by factoring in both the obvious and not-so-obvious costs into your business plan.