6 Hidden Costs of Starting and Running a Business

Launching a business is a complex and capital-intensive process. In order to thrive, I’ve found it’s best to understand your expenses beforehand, including calculating your total first-year budget estimate and adding an extra 20 percent as miscellaneous.

A common mistake leaders make is failing to consider all the costs of starting and running a business. I’ll help you prevent that by discussing some of the hidden costs and sharing my tips for launching a business. 

The Hidden Costs of Starting a Business 

Here are six of the less obvious, but highly important, costs to factor in when launching your enterprise:

1. Taxes

As a business owner, you’ll be responsible for paying various federal, state and local taxes. The intricacy of your taxes depends on your locality. California, for example, requires a 7.25 percent sales tax, while Texas requires a 6.25 percent sales tax. 

2. Permits, Licenses and Fees 

These expenses are needed to start your business or perform certain activities. Some licenses and permits are a one-time expense you’ll need to pay at the commencement of your business, while others require renewals. 

Permits, licenses and fees vary with your business niche, country and locality. Thus, it’s wise to consult a local business consultant or a founder with the same type of enterprise for advice. 

3. Employees and Benefits 

Employees and benefits significantly impact the cost of running a business – and can be unpredictable. Costs here include medical and personal leave, training costs and health insurance. These expenses are necessary to provide motivation for employees and retain top talents with rare skill sets. 

4. Administrative Expenses 

These are overhead purchases that your organization incurs that are usually not tied to its core production activities.

That is, expenses required to procure items to support your organization’s daily supervisory activities and paper works. This can include rent, utilities, office equipment and fixtures, office supplies, etc. 

5. Business Insurance 

Business insurance fees are premiums paid to protect your enterprise against loss incurred during a theft, disaster, litigation or any other unforeseen circumstance.

Many states in the US require businesses to have workers’ compensation insurance, while some niches require a series of comprehensive coverages. For example, you may need third-party vehicle insurance. 

6. Professional Consultants 

Professional consultants can proffer solutions to your relevant pain points. The consultants you’ll hire depends on your business function. Some examples include marketing consultants, IT consultants, finance consultants, etc.

A 2018 study of 100 major companies found three-quarters of private sector organizations spent between 2 percent and 5 percent of their total budget on consulting support. 

Tips on Starting a Business

Starting a business and making it thrive is a very difficult endeavor. The Harvard Business Review notes that most startups fail. To better avoid being among them, I suggest adhering to the following tips:

Define Your Business Concept

Your business concept is the idea you build your enterprise around – the core purpose of your business, how you plan to generate revenue and your ultimate strategy for being profitable. 

Your concept may be to create a new and never-before-seen solution, modify an existing model or replicate an already existing one. Once you know what the idea is, work with your team on fine-tuning all pain points. 

Develop a Scalable Business Model

A scalable business model supports quick growth. Focus on making the core business model of your enterprise flexible enough for horizontal scalability (ability to add more products) and vertical scalability (ability to increase current product output). 

Get Your Finances in Order

I suggest keeping your core business processes and finances separate. For starters, open a business bank account for transactions such as invoicing customers and paying suppliers.

Often banks require a separate account to issue credit and overdrafts. Additionally, consider hiring an accountant or using accounting software to manage your ledger and generate financial statements.

Lastly, before funding your enterprise, it’s best to get an idea of your startup costs. Make a list of your total expenses – both the easily observable ones and the hidden costs.

Some experts recommend having cash to cover your operating expenses for a few months post-launch.

For your business or startup to thrive, it’s important to understand your costs before launch. In addition, sharpen your business concept, make it scalable and get your finances in order.

Source: incafrica.com