For the entrepreneurial mindset, the idea of starting your own business and all the freedom and potential for growth that comes with that venture is very exciting. Too often, however, small business owners wind up miscalculating the actual, daily costs of running a company. In order to succeed, you’ll need to budget for expenses—both the expected and the unexpected. However, an important key to succeed in business is managing your cash flow. In order to do this, you need to budget for expenses, and expect to have unexpected (or hidden and not obvious) costs that would obviously drain your cash unless you plan for them.
Think of shrinkage: When thinking of shrinkage, obviously theft (by customers or employees) is usually the first thing that comes to mind. Other kinds of factors such as damage during transit or simple clerical errors come later in mind. Compared to other costs of doing business, shrinkage is relatively minor, but when combined with any number of other hidden costs, evidently your business could easily face financial trouble. Successful small businesses are built on innovative new ideas, but success also depends on your ability to accurately predict the unexpected.
You can, of course, reduce your exposure by implementing loss prevention practices like employee training, etcetera. It is hard to eliminate it entirely but do something to reduce it. Some employees will steal no matter what and it will drain money from your business.
Employee turnover: Whether you have 5 or 500 people on your staff, there are several employee expenses that must be taken into account when running a small business. You’ve probably already factored in the big things such as salaries, payroll taxes, benefits, and retirement plans. What you may not realise is that there are many more smaller expenses that quickly add up, such as paid vacation time, sick leave, maternity leave, certifications, classes, conferences and training.
Other employee turnover costs like hiring and training new employees are considered as hidden costs you should plan for. While most of these expenses might seem optional, they usually aren’t. For instance, if you don’t invest in a clean, comfortable and enjoyable environment, you may end up paying for it later with a higher employee turnover.
Legal fees: As a small business owner, you can expect a variety of legal expenses. At the very least, you’ll pay to set up a corporation or an LLC. Depending on your trade, you may also need to shell out the cash for local and state licenses, permits and certifications. Many businesses will also need to pay a lawyer to draft contracts and legal disclaimers. By far the largest hidden legal cost is that of litigation.
It’s easy to assume that you’ll never be the target of a lawsuit, but small businesses are the biggest targets for lawsuits because attorneys know that they’re more likely to settle out of court than pursue legal action. As an entrepreneur, business associations and conferences are an invaluable way to connect with others in your industry and with potential customers. However, these two things come with costs that are rarely factored into a company’s overhead.
Most reputable business associations come with annual membership fees that can cost you a lot, so even if you only join one or two, that can add up. Trade conferences are another great way to network and show off your product or service, but they come with several costs, too, including tickets to the conferences, travel costs, lodging, meals, and lost time at work for the days that you and your employees are out of town. The above aren’t the only hidden costs to consider. How you spend your time can be a big hidden cost for your business.