Despite its appeal, running a company isn’t easy or cheap. 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
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
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.
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.
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
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 small business owners, 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, make sure that you’re prepared for anything by setting some cash aside for legal fees, just in case.
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.
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