According to a survey performed by CBS Insights, running out of cash was the second most common reason for a startup’s failure, second only to insufficient market demand. While not all costs can be predicted, here are few of the costs that new business owners most often overlook.
Starting a business can be incredibly challenging, but for those who do it successfully, it’s extremely rewarding as well. If you’re considering starting a business, or if you’re still in your opening stages, you’ve probably already considered what it might cost. You’ve probably already considered expenses like rent, wages, and production costs. But unfortunately, starting a business comes with a plethora of unexpected costs as well. These expenses can endanger your business if you haven’t budgeted properly.The Kauffmann Foundation reports that it takes an average of $30,000 dollars to get a business up and running. When a new business goes under, it’s often because the owner didn’t take into account all the extra costs that can pop up along the way. According to a survey performed by CBS Insights, running out of cash was the second most common reason for a startup’s failure, second only to insufficient market demand.While not all costs can be predicted, here are few of the costs that new business owners most often overlook:
When it seems like almost anything can be done on phones or computers, new business owners may not properly anticipate their need for day-to-day office supplies. But the truth is, you definitely need office supplies. Paperclips, pens, stationery, printers, ink, filing cabinets, etc. are all important tools for keeping your business afloat. These expenses are usually glossed over because so many of these supplies are cheap on their own. However, because these expenses recur and grow with your business, ignoring them can be costly.
If you sell a product or even software, shrinkage is an expense you need to account for. When budgeting for the building of your product, make sure to incorporate the cost of the failures along the way. No matter what you’re creating, time and money will be spent on unsuccessful attempts at a final product. Of course, shrinkage factors not just into the initial build of the product, but into each subsequent batch of the product as well. The makers at your company, whether they be programs or people, will mess up sometimes. If you’ve thought ahead and budgeted for failure, you can easily recover from the mistake. If you’ve only left room for perfection, your business will not survive.
Insurance may help you recover from a fall, but it can also cause one if you aren’t prepared for its costs. There are all different kinds of insurance that may be necessary for you to purchase at different stages of your business, so it’s important that you find an insurance specialist who can help you know exactly what type of insurance your business requires and how much it will cost.
Cash-only businesses are rare nowadays. Businesses have been forced to adapt to meet the demands of consumers, 77% of whom prefer to use either a debit or credit card when making purchases. However, not many businesses understand the costs that come with accepting cards. Payment processing is the second-highest operating expense for U.S. businesses, only behind labor. However, the costs are often hidden in complicated contracts and go unnoticed completely. Business owners would be wise to spend time evaluating processors and negotiating rates; doing so can save businesses thousands of dollars per month.
Sometimes it pays to do things yourself, other times it’s just better to pay someone else. If you don’t consider yourself a numbers person, taxes is one you’ll want to pay someone else for. Taxes, done incorrectly, can end up being extremely costly. Because different types of business are required to pay different taxes and face different tax liabilities and credits, figuring out exactly what you owe is a chore. For instance, unincorporated businesses that make over $400 annually must pay a self-employment tax which can add up to 15.3% of your income. Taxes are inevitable but losing money on them doesn’t have to be. Make sure to incorporate the costs of a good tax accountant when making your budget.
Most governments require businesses to have permits. At the very least, you’ll need a business license but some states require you to have more. Individual permits cost money, but most require a recurring renewal fee to stay valid. These can be costly (especially if you are in an industry that’s more regulated), but not having a permit will not only cost money but will cost you your business, too, so be sure to purchase and stay up to date on your permits. These expenses are certainly not what most entrepreneurs expect when starting their business. It’s not at all glamorous, but handling these expenses is absolutely necessary for your company’s success. By properly budgeting for these (and other) expenses, entrepreneurs can set themselves and their businesses up for success. If you want to predict future expenses, your best bet is to speak with others who have already gone through the process and find out what you might be missing. Of course, budgeting for these items does not guarantee that your business will succeed, but it gives you a much better chance.