Establishing and running a successful small business takes hard work and careful budgeting, yet many small business owners remain unaware of hidden expenses that can eat into their profits.
These costs can easily be avoided by being aware and managing expenses as necessary. Here are some of the more frequent business expenses:.
Employee Costs
As new entrepreneurs can often come from corporate backgrounds, it may be easy for new small business owners to overlook all of the expenses involved with running a company – from cell phones for keeping in contact with clients outside of office hours to employee costs related to providing health plans, the costs can quickly add up.
Legal fees are another hidden cost for businesses. According to the National Federation of Independent Businesses, nuisance lawsuits account for $35.6 billion annually in costs. Even if a lawsuit doesn’t result in litigation costs being added onto insurance premiums.
If you want to reduce hidden costs, hiring contractors and freelancers could be the way to do it. By outsourcing marketing, accounting or data entry tasks to these professionals you’ll avoid paying employee salaries and benefits; yet still get them completed on time – though of course additional expenses like health insurance premiums and payroll taxes must still be met by you as an employer.
Business Insurance
Young entrepreneurs often undertake the task of founding their dream businesses without fully considering all of the associated costs that can make or break its success.
Insurance costs for businesses can be an overlooked expense. A typical small business needs general liability coverage to protect itself against third-party claims of bodily injury and property damage; in addition, commercial property policies provide physical damage coverage against loss to owned and leased structures and equipment owned or leased by them.
Business interruption insurance policies provide coverage against lost income during repairs following covered events such as fire or natural disaster, such as repairs to buildings and equipment that need to be fixed after fires or natural disasters. Most commonly included as part of larger property and liability policies; however, certain industries require separate policies in order to meet regulations.
Business Taxes
As a small business owner, you will owe taxes. These include your income tax and FICA or self-employment taxes – these expenses would typically be split with their employers by salaried workers but as you are responsible for all these payments on your own, this responsibility falls on you alone.
Your financial obligations also include costs related to city, state and federal licenses, permits and certifications that may be required by your trade. These fees can quickly add up if multiple permits are needed in order to operate effectively.
Opportunity cost should also be taken into account. If your day consists of extinguishing fires or balancing books, that could prevent you from investing time into personal development or maintaining healthy relationships with family and friends – especially if working in an industry with highly competitive fields. There are ways to minimize these costs; having insight into where costs might arise will allow you to plan effectively and reduce them over time.
Business Licenses
Most companies must secure some type of license at local, state and federal levels for their type of business; depending on its nature these fees could be one-time or ongoing.
Before beginning to establish a business, it’s essential to thoroughly assess all costs involved. Otherwise, unexpected expenses could wreak havoc with budgets and jeopardise company finances before it has even had time to begin operating.
Small businesses don’t always have the financial resources to withstand unexpected setbacks, which could prove costly for their operations. To prevent costly surprises from emerging, entrepreneurs should make a list of all startup costs and determine whether they are one-time or recurring charges; additionally they should conduct thorough research of estimated costs as this will allow more accurate forecasting for the future. Doing this can help small businesses attract investors while pinpointing when profits will begin being earned as well as when renewals will need to take place and anticipate what legal fees could arise should they become involved if sued by customers or competitors.
