With convenient access to technology and global resources, it’s the day and age for creating a business doing something you love and becoming your own boss. Before you jump into selling the next amazing tech gadget or establishing the newest form of media, make sure you understand the most commonly overlooked costs of business ownership.
Get prepared to be overwhelmed by paperwork and plan to pay for every single document you fill out. Most communities require permits and licenses for doing business; you’ll pay to submit the documentation as you get set up and then you’ll pay to renew those annually. You may also find that joining networking organizations in your area is beneficial to your business, as long as you can afford to continue paying those fees. Save a bit of money by asking about business-related discounts to offset the cost of annual fees.
Two: Office Set-Up
Where will you set up your business base? Do zoning regulations allow you to set up in your basement? Can you afford to rent an office and pay for utilities? Once you have your office space set up, you’ll have to pay for utilities, office equipment, and technology. Don’t forget to include software, paper, and other consumables.
Within just one year, you may pay thousands of dollars for rent, office bills, and supplies. Although some of these items don’t cost much individually, a year’s worth of paper clips, pencils, and pens carried home by employees could really add up. You may be able to save money by renting office space and equipment.
When you add up employee costs, don’t stop at wages. As you do the math required to estimate start-up costs, you also need to consider the costs associated with trainings, perks, benefits, and turnover. You’ll also need to factor in costs of recruiting, employment taxes, and work space. According to one engineering entrepreneur, the actual cost of an employee is 2.7 times the salary.
An additional employee-related cost comes in the form of hiring mistakes. Those mistakes could include hiring too many employees or rushing through the hiring process and ending up with poor employees. While you struggle to gain experience in the hiring process, it’s helpful to understand the economic metrics.
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Obtaining the right insurance is one of the most important bills you pay each month. Protect your business with insurance such as employer liability, public liability, negligence, property, illness, and injury insurance. You may also want to consider a workers’ compensation policy. Talk to business peers or insurance agents to find affordable insurance that provides the specific type of coverage you need to keep your business operating.
At some point, you’ll probably loss inventory after you’ve paid for it and before you’ve been paid for it. This may happen because of employee mistakes or theft, vendor mistakes, damaged items, shoplifting, and theft. In the United States, retailers generally lose 1.4 percent of their annual sales to shrinkage due to shoplifting and employee theft. Fortunately, you can reduce this type of cost by investing in an inventory management system. Just make sure to weigh the cost of that management system against the amount of shrinkage you’re experiencing.
There are some emergencies you might expect, allowing time for making plans. For example, you may live in an area where flooding is common, so you include an emergency plan for that situation. However, there are many scenarios that you cannot expect. One small business that provided services covered by Medicaid was put into a dangerous situation when the company hired by the state to oversee Medicaid operations decided to reimburse companies only 25% of what they had been earning. Establishing a savings account is a good way to reduce emergency spending.