10 Hidden Costs of Running a Small Business

Business Money-Wise Strategy: A good rule of thumb to stay out of the red is to budget 20% of revenue to cover expenses you simply don’t think about.

 

Industry association fees – It helps to be connected, especially as a new small business. A great way to build your network among peers is to join professional associations relevant to your industry. Be selective – annual costs can be hundreds of dollars. Select one or two of the top associations and get the most out of your money. Use a service like MeetUp or contact your local chamber of commerce to get started.

Licenses or permits – Do you need a license or permit to do business? What will it cost and how often will it be renewed? Will you be required to invest in CEUs annually? Factor expenses like this into your budget. A great resource on business governance and licensing requirements can be found here.

Legal services – Hopefully your small business will never need a lawyer, but legal counsel can quickly eat away at your margin ($125 an hour does not look good for your bottom line). Research hourly rates and negotiate fees upfront to save trouble and money. Hopefully you have established strong relationships with other local business professionals. A reference goes a long way in today’s world!

Credit card fees – Credit card fees can get you on the front end as a buyer and on the back end as a seller, so manage your money wisely. Read about business credit card considerations here.

Can customers buy your product or service with a credit card? Expect to pay around 3% of total charges in credit card fees, if so. Research can help you determine credit cards that charge the lowest fees, but ultimately you want to make purchasing simple for customers. Find the right balance between fees and customer satisfaction.

Employees – Salaries, sick leave, vacation and health insurance add significant expenses to your budget. Keep in mind that health insurance is most expensive for companies with fewer than 10 employees, so budgeting for benefits is important to stay out of the red. The health insurance exchange rules have been delayed until 2015, so employers have a little more time to plan for regulatory changes.

Cell phone service – A smartphone with all the amenities can cost over $100 a month in charges – and that’s not counting the cost of the phone! Evaluate who needs a company cell phone in your business and what services they require.  Is bulk pricing or shared contract servicing an option? It may save you money!

Office space – Paying hundreds or thousands of dollars a month to rent a space for your small business can hit your bottom line in a big way. Before deciding where to set up shop, ask other local business owners about their experiences and best advice for local renting. 

Utilities – After renting your office space, don’t forget to budget for utilities: electric, water, gas, Internet and phone. Most services will estimate the average monthly cost for easier financial planning. Tip: According to Cornell University, keeping the thermostat at 77°F will improve office productivity – plus you’ll save on electricity during those summer months.

Purchasing office equipment – The tools you need for your small business to create a product or run a service are obvious, 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. Determine the needs of your small business and compare prices until you find the best deal. Some items, like cubicles and desks, can be purchased second-hand for a significant savings. After you get set up, manage your assets and inventory in a way that maximizes your return on every dollar invested. You can easily save up to $200,00 a year on unnecessary expenses.

Repairs and maintenance – You budgeted for company smartphones, office rent, the electric bill and a cutting-edge copier, but what happens if everything breaks? Reserve a line in your budget for emergency expenses.

TimeYour time is money, so be sure to tackle new projects with an accurate forecast of the labor involved. And don’t forget the time it takes to execute basic business management tasks – like filing paperwork, billing customers, collecting funds, and managing your finances.

 

Have you run into other hidden costs in your small business?  Share with the community below.

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Brian Sutter

Brian Sutter

Director of Marketing at Wasp Barcode
Brian Sutter is the Director of Marketing at Wasp, responsible for the development and execution of the company’s marketing strategy. His role encompasses brand management, direct and channel marketing, public relations, advertising, and social media. He also writes and speaks on topics related to helping small business owners grow their business and improve operational efficiency.
Brian Sutter
Brian Sutter
  • Chad

    And you call these costs hidden. Why?
    If you don’t take these basic costs into consideration before opening your business you don’t have business being in business.

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  • http://www.facebook.com/profile.php?id=1073740379 Dr-Edward Santiago

    Great article

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    • jessirj

      Thanks for your feedback!

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    • http://twitter.com/SmallBizBrian Brian Sutter

      Thanks! Appreciate the feedback.

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  • Gerardo Barria

    very helpful tips for small businessman ….

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    • jessirj

      Thanks, Gerardo. If you have additional insight, would love to learn more.

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    • http://twitter.com/SmallBizBrian Brian Sutter

      Glad to hear that, Gerardo.

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  • http://billionsuccess.com/ Herby Fabius

    Great post Brian, starting a small business seems like a lot to take on considering some of these costs.

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    • http://twitter.com/SmallBizBrian Brian Sutter

      It is a lot, but if you know what you’re getting into upfront you can plan for it and still be successful.

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  • http://www.3hatscommunications.com/blog/ Davina K. Brewer

    Not so much hidden Brian, sometimes I think some these are just overlooked. Ex. you know you’re going to have employees and all the expenses that go w/ – but if you ignore things like turnover, the costs of recruiting and retraining can add up in a hurry. As to office set-up and workflows, small businesses need to look at how they work in order to see the best way. Ex. are paper reports and files really necessary? Or would investing in Cloud services actually pay off both in terms of long-term equipment and supply savings, as well as increased returns via more productive employees? Something to consider.

    Much of these others certainly creep up on a small biz manager – and nothing more than time. It’s often a case, much like technology, the ‘savings’ of going cheap or DIY won’t add up in the long run vs. outsourcing, delegating those tasks so that everyone gets the most from their valuable time. FWIW.

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    • http://twitter.com/SmallBizBrian Brian Sutter

      Davina, You are right, “overlooked” is a more accurate word than “hidden”. Cloud services can definitely help small businesses save money. You may be interested in the article my colleague wrote on that topic— http://bit.ly/ZCveJX.

      Time is a big overlooked factor, and you make a good point about DIYing. It doesn’t always result in savings if you consider the time (money) spent trying to learn a task you aren’t already trained in.

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  • Harry

    Brian – Not all of these expenses are hidden. Now there may be ways in which you can reduce these expenses. I wrote an article on how to systematically reduce the costs. it addresses many of the expenses you have mentioned here. Would love to hear your view on that article – http://www.smallbizviewpoints.com/2011/08/17/a-systematic-approach-to-cost-reduction-for-small-business-owners/

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    • jessirj

      Harry, I think you mention some fine strategies in your article – thanks for sharing. Ultimately we wanted to provide readers a laundry list of things to be conscious of as its easier than ever for nominal, “hidden” expenses to add up to rather important, big expenses. Being aware of what some refer to as your “latte” factor is the first step to financial self analysis and reduction of wasteful spending.

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  • http://www.facebook.com/profile.php?id=100005531375452 Facebook User

    Nice post! Thanks for sharing!

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