7 Hidden Costs of Starting and Running a Business – Despite its appeal, starting and running a Business isn’t easy or cheap, involves several costs. Alongside all of the expenses that you may already be aware of, there’s also a number of additional costs to running your company that you might not have considered. If you’re not prepared, the costs of your company could easily creep up on you and demolish your bottom line.
A lot of people assume that launching a business doesn’t cost much, beyond your time and commitment. However, studies from the Kauffmann Foundation indicated that the average startup costs around $30,000 to get up and running.
To help you better understand the costs of running a business, here are some unexpected expenses to think about.
1. Excessive Loan Interest
7 Hidden Costs of Starting and Running a Business – Most entrepreneurs will need a loan to help finance their startup. Usually, this will come in the form of a small-business loan from a credit union or bank. Unfortunately, if you have no experience dealing with commercial investments, then you may not know how to separate a good business loan from a bad one.
One thing to remember is that if your business doesn’t have any history in the current marketplace, then your loan will be offered based on your credit history. This means that if your credit score is bad, you might not have a great interest rate on your loan. Ideally, it may be a good idea to wait for your credit score to improve before you try and launch your business. Or even consider an option which caters to those with bad credit. This way, you can keep your repayments as low as possible, and focus on putting more money back into your brand.
2. Employee Perks and Benefits
7 Hidden Costs of Starting and Running a Business – Most employers know that they have to pay their team members a salary. However, it’s easy to forget about things like benefits and perks. These days, if you want to attract the right talent to your team, you can’t just offer remuneration. You’ll also need a strategy to delight your people with things like healthcare costs and free detail cover.
As you begin to think about growing your team, make sure that you know the realistic costs of hiring a new person. There’s often a lot more than just a monthly wage to worry about.
3. Shrinkage
7 Hidden Costs of Starting and Running a Business – Does your business sell a lot of physical products? If so, there’s always a risk that you could suffer from something called “shrinkage.” Ultimately, shrinkage is a significant problem for businesses of all shapes and sizes, costing companies an average of about $45 billion per year. Shrinkage comes from a number of problems, including employee theft, errors in paperwork and more.
Sometimes, there are even losses in your business that you won’t be able to attribute to anything. Occasionally, businesses just lose money, and it’s difficult to figure out why. The best thing you can do is make sure that you’re prepared for anything.
4. Insurance
7 Hidden Costs of Starting and Running a Business – When you’re launching your company for the first time, you may not need a lot of insurance, to begin with. However, as time goes on and your business evolves, you might need additional forms of coverage. For instance, as well as general business insurance, you could invest in compensation insurance for your workers, property insurance, errors and omissions insurance, and so on.
The amount you’ll need to pay on your insurance will depend on various factors, including the size of your business, the kind of company you run, your industry, and even the number of staff members you have. Remember that insurance can be very expensive in the long-term, however, so don’t underestimate it.
5. Legal Fees
7 Hidden Costs of Starting and Running a Business – Most entrepreneurs don’t go into business with the assumption that they’re going to generate dozens of legal fees. However, it’s important to be prepared. Legal fees are some of the most common hidden costs that entrepreneurs face. Frequently, small businesses are hit with legal claims, because lawyers know that small companies are more likely to settle on a case than pay for representation.
With a little luck, you’ll never find yourself facing an unwanted court case. However, it’s best to make sure that you’re prepared for anything. Having an attorney or purchasing an online legal plan, like those at LegalShield, can provide peace of mind and protection for your small business. It’s never a bad idea to set aside some cash just in case you have unexpected legal fees.
6. Taxes
7 Hidden Costs of Starting and Running a Business – Finally, remember that your taxes can cost a lot more than you’d expect, particularly if you’re used to life as an employee, where all of your expenses were managed for you. The chances are that the payroll department managed taxes when a company hired you. Now, you’ll be responsible for paying everything yourself. You may even need extra money to pay for an accountant to help you.
7. Administrative Costs
7 Hidden Costs of Starting and Running a Business – Finally, administrative costs will sneak up on you if you aren’t prepared. This includes all of the things you previously took for granted when you worked for someone else
- Utilities
- Computers
- Phones
- Printers
- Filing cabinets
- Paper clips
- Office cleaning supplies
- Software
Individually, these items might not cost that much. They only add up to thousands of dollars over the course of a year. Do yourself a favor and account for them when you prepare your budget.
Ingrid Maldine is a business writer, editor and management consultant with extensive experience writing and consulting for both start-ups and long established companies. She has ten years management and leadership experience gained at BSkyB in London and Viva Travel Guides in Quito, Ecuador, giving her a depth of insight into innovation in international business. With an MBA from the University of Hull and many years of experience running her own business consultancy, Ingrid’s background allows her to connect with a diverse range of clients, including cutting edge technology and web-based start-ups but also multinationals in need of assistance. Ingrid has played a defining role in shaping organizational strategy for a wide range of different organizations, including for-profit, NGOs and charities. Ingrid has also served on the Board of Directors for the South American Explorers Club in Quito, Ecuador.
