Do you have a clue what kind of costs keep your business running? You might be in line to increase your profits but you end up falling short each time. In most cases, the main reason for this is that there are hidden costs you are not familiar with that you have not accounted for. The typical expenses of a small business include supplies, inventory and other costs that are fixed when it comes to the production of your products or the delivery of your service. Although some of these costs are easy to identify, there are others that are tough to notice.
For the unexpected costs that small business incur, Andrew Knight New Canaan would like to give you nine examples that you might easily miss.
Permits and licenses
Your business might require a permit and a license. Most businesses need to have a business license to operate in a state. Confirm the specific state requirements for setting up a business because you might also be required to get a permit. There are government agencies and industries that require you to have extra permits. For instance, if you plan to place a sign beside your building, you need to sign a permit. You should also be aware that the license and permits have renewal fees on top of the initial cost.
Insurance
As you build your business, you should plan on protecting it. Insurance protects you from legal and financial issues. The very least you should do is to get a liability coverage. A liability insurance policy helps you to protect your company from losses in case someone sues you.
Apart from minimum coverage, you need to add different business insurance types to safeguard your business. For instance, you might want commercial auto, property, or home-based business insurance. You can talk to an insurance agent who is an expert in small business to learn the options you need.
Equipment and their maintenance
For any kind of business, there has to be an equipment that you need to get the job done. In that case, you need to know the cost of your equipment. As your business continues to grow, make an account of all the extra equipment that you will have to purchase. As the profits start to come in, you may want to upgrade the equipment to have efficient operations. As you do that, consider that you need to maintain the equipment.
Taxes
You may not be good at taxes, but when you are your own boss, you have to handle your taxes. If you have a business that is not incorporated and it makes more than $400 on an annual basis, you have to pay self-employment tax which is made up of Medicare taxes and Social Security.
In your small business, you will have to pay federal income tax together with local and state incomes taxes in places that are required. You need to have an update on the tax rates and their deadlines because there could be more tax liabilities on the business you run.
Employees
The more your products or services are demanded by your consumers, the more you need to put into our business. A time will come when you will need to hire more employees to ease the work you have on a daily basis; although hiring a competent staff is not cheap.
There are several hidden costs that come when you add a payroll to the business. Some of the employee expenses include training costs, taxes, regular wages, and benefits.
Payment delays
Delay in payments is not a direct expense if you get a good or service once you make your payment. The frequency of the payments you receive impacts your cash flow. When you have slow paying customers, your business will lose money.
You can avoid late payments if you optimize the terms and conditions of your invoice payments and following up with customers who pay late. Don’t make an assumption that your efforts of making payment collection will lead to payments that are done on time. Always have a cash cushion to help you carry through when the payments delay.
Time
As a small business owner, your time is precious. Avoid spending a lot of time on tasks that are not generating any revenue because this is a very dangerous hidden cost you might easily be ignoring. On a daily basis, make a to-do-list and prioritize the list to plan on what should be done first.
Credit card fees
The cash-only business is not the only option today. Credit card payments allow people to make frequent and convenient purchases. But what you should be aware of is the typical business cost for this kind of payment plan.
Shrinkage
Although credit cards and other expenses can help you make a profit, there are other expenses that are inevitable. For instance, goods getting stolen or damaged, ingredient spoiling and accidents happening. When there is a loss of inventory between the consumer and the supplier, it is called shrinkage. Therefore, when you sell products, account for the hidden costs.
In summary, Andrew Knight New Canaan would like you to know that there are ways that you can implement to reduce the expenses in your business. Look for the best policies, payment rates, and terms. Review the expenses to see the place you could save and the purchases that cost you the most. Once you are done, consult with a financial professional on the unexpected costs of a business.