For the first-time business owner, your ability to control costs is a critical success factor. But have you factored in these often-overlooked costs of running a business?
What could be more cost-effective than starting your own small business?
Running your business from home means no commute and money saved. No managers or investors to keep most of the profit for themselves and no (additional) rental overheads.
For many, it sounds like the perfect antidote to a busy, expensive lifestyle. But is it?
The truth is, running a business carries various costs that are easy to overlook – even if you’re operating it out of your parents’ garage. And if you don’t plan and prepare, your dream business could become a financial nightmare.
To help you get prepared for running your own business, here are 10 business costs that every business owner should consider.
1. Your own time
The irony is many entrepreneurs begin working for themselves to better value their time, but many completely fail to do so.
Instead, they fall into the habit of trying to do everything themselves, assuming their effort is innately productive – but that isn’t the case.
Part of the reason for this is that it’s possible to value your time in an abstract sense (recognising that you have useful skills) without monetarily valuing it.
As a business owner, understand what every hour of your time is worth and use that as a yardstick to figure out what you should (and shouldn’t) be spending your time doing.
2. Staff (permanent or freelance)
The dream of flying solo isn’t sustainable if you have any ambition to scale your offering.
No matter how skilled or dedicated, there’s only so much a person can accomplish in a day. Sooner or later you need to start building a team.
And however inevitable it may be, it’s all too easy to treat it as something that might happen one day but isn’t an immediate priority.
But if you know you’ll need employees worth investing in some day, you need the funds to offer competitive salaries – and that requires preparation and saving.
3. Employee benefits
The employment landscape is competitive. Attracting quality people to your team – and then keeping them – often means being able to offer benefits in addition to a competitive salary.
Think hard about what benefits or perks you could offer your staff – and don’t be afraid to get creative.
Perks don’t have to cost a lot. Benefits like fixing workdays to school hours, an extra day off for your birthday and free swag go a long way to piquing the interest of would-be team members.
4. Business software subscriptions
Without the advent of software-as-a-service (SaaS), or cloud-based software, it wouldn’t be possible for a lone entrepreneur to build a scalable online business.
From your word processor to your website, if it’s digital then it can be delivered over the internet for a relatively low monthly rate.
One example of a business-critical solution is online accounting software. Adopting this early on makes it easier to get paid faster with automated invoices, capture your receipts and prepare cash-flow forecasts.
Many new business starters figure they can do all this manually, but your time is valuable, and much better spent on other things. And the introduction of Single Touch Payroll in Australia and Payday Filing in New Zealand means that, if you intend to employ staff, you will need to acquire this kind of software to report salaries and super with each pay run.
There can be also be hidden costs in choosing between SaaS utilities. What you think is the best deal might work out as more expensive in the long run.
I follow e-commerce closely and both Shopify and BigCommerce are great website hosting solutions, with the latter being nominally cheaper. But Shopify’s native multichannel selling, automation options and higher growth rate may justify the higher price and ultimately make it cheaper as your business scales.
Ultimately, the right software solution for your business will come down to your individual circumstances, so consider your options carefully.
5. Industry memberships
These costs can really take people by surprise, because many people don’t know they exist.
Industry memberships are sometimes mandatory, but more often simply recommended, and involve businesses joining governing bodies (of sorts) that oversee their industries – whether regionally or internationally. The ACCC lists a number of these industry associations on its website, while New Zealand also have an array of industry and trade associations.
For instance, if you ran a decorating business, you may need to join a regulatory body tasked with making sure all decorators are working safely and correctly (depending on the country).
6. Insurance policies
When you start running your business, you’re riding on a wave of optimism. Finally, everything’s going to go your way. You’ll make the money you were previously denied, have the freedom you always craved, and be able to truly express yourself.
But things won’t always go your way, so business insurance is important.
Depending on the type, breadth and level of insurance you go for, this can be a modest cost or a massive one. Either way, it’s not something that any business owner should ignore.
The long-term survival of your fledgling business is more important than your early profit levels, so take it seriously, shop around to find the best insurance deal, and get your operation covered.
7. Permits and licences
Running your cupcake business from the convenience of your own kitchen sounded so perfect.
But failing to take into account permits that your local council requires may mean that your business is cooked before you can even get it off the ground.
Find out what permits and licences you’ll need to do business in your area. There might be local, state or national requirements for your business to be legal – and they are often annual expenses.
Account for how often the permits need to be renewed and what the renewals will cost.
8. Equipment upgrades and maintenance
Sure, starting a business with just yourself and your laptop was a great idea at first, but that won’t be the case forever.
Remember that all office equipment – like computers, printers and even office furniture – has a functional lifespan. And nothing lasts forever.
Smaller items like paper, scanners, storage furniture and ergonomic chairs can often be overlooked.
Over time, everything you use in your business will need maintaining and upgrading, so make sure you think ahead about how much this might cost.
9. Invoice payment delays
One thing that can really hit your cash flow and your ability to pay yourself and your overheads are payment delays.
Just because you did the work and sent the invoice in good time doesn’t mean your client will pay you immediately. Forgotten invoices, bounced cheques and holiday delays often cause hiccups to your payment schedule.
Wages, insurance, rent and bills need to be covered, no matter what, so make sure you account for a float to keep you afloat.
10. Professional services
Bookkeeping, legal and accounting fees can run into thousands of dollars annually, but these experts can save you money and time. You may want to procure the services of a financial planner or business mentor to help you get a step ahead, but these valuable services come with a price tag.
Professional services could make critical improvements to your business, so factor these costs into your business planning.
Source: MYOB July 2021
Reproduced with the permission of MYOB. This article by Kayleigh Alexandra was originally published at https://www.myob.com/au/blog/hidden-costs-running-business/
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