If the thought of starting your own business and being your own boss is something you've always wanted to do, it's wise to first understand expenses. Underestimating the costs you’ll absorb is a key contributor to business failure, so its important to plan for and understand exactly what it will take to be successful. Our short list of hidden business costs can help you get started. What other hidden costs should entrepreneurs be aware of?
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.
Time – Your 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.