9 hidden costs of running a small business
In the excitement of setting up a new business or under pressure from dealing with the everyday details it’s easy not to see the wood for the trees. While focusing on the larger, more obvious costs of your business you may be neglecting the hidden costs of running a small business.
If you want to be sure that your income continues to exceed outgoings then it’s sensible to factor hidden costs into your business plan. Salaries and supplies are evident costs but what about the invisible, less tangible expenses?
Let’s take a look at 9 common hidden costs of running a small business:
- Paying for unused or underused equipment, premises or vehicles – you would be surprised how many businesses are continuing to pay for once cherished, but now languishing, items. It may be vehicles, premises, storage, office equipment or mobiles. Conduct a thorough audit of these elements – a full audit is good practice in any case – and review what you can sell or dispose of.
- Repairs, upgrade & replacements – these hidden costs are easily overlooked, especially when starting up and new equipment is performing well. However it is important that your annual budget and ongoing business plan includes costs for repairs, upgrades and maintenance. Larger items may be obvious but also remember to take account of smaller office equipment, costly mobile items (laptops, smartphones) and furniture. Make sure that you get your machines and equipment serviced regularly to head off breakdowns.
- Shrinkage – the loss of goods through theft, errors, fraud or damage in transit or on site. Theft can include stationery or other office items which some misguided staff can see as a ‘perk’ or personal use of company vehicles, fuel or mobiles. Instilling a culture of honesty is worthwhile but can take time to embed. In the meantime let staff know in advance about monitoring measures – for example, vehicle monitoring, checking mobile call durations and clocking in – and share with them the need for company efficiency.
- Insurance – your business needs the right protection when things don’t go to plan, be it accidents, loss or serious difficulties with a client. Small businesses frequently underestimate the cost and cover needed. Consider public liability insurance if you work at external locations or invite clients or customers to visit you – you may want to protect against claims made in the event of damage or injury. Professional indemnity insurance will be needed if your work could cause a financial loss for your clients. There are also a range of other covers, including business equipment insurance, tool cover and personal accident insurance so it’s best to get professional advice.
- Energy costs – almost a third of small firms highlight the cost of energy as a barrier to the growth and success of their business so it’s important to consider the options. Consider switching supplier but talk to potential suppliers first to ensure it will be straightforward and without disruption. Before this, you might also try to identify energy efficiency savings as they are the single best way of reducing energy costs and can be up to three times more effective than switching.
- Roll over contracts – busy with daily operational details, it can be easy to miss the termination window for contracts with various suppliers. Often contracts are automatically renewed, at a higher rate and without anyone noticing. While there are legal protections for consumers the same does not exist for business contracts. Make sure you conduct an audit of existing contracts and set up a system of triggered alerts which provide reminders well in advance.
- Poor data management – it’s important to keep your communications or marketing database updated. This is the database which you use to keep in touch with valuable, existing and potentially new customers. Information sent to those who have moved or closed down could turn into a cost to your business. Not only is it ineffective but it could damage your brand. Don’t bombard customers with emails or send irrelevant mail to the whole list – choose quality over quantity.
- Technology costs – ineffective websites, old-fashioned marketing and outdated manual processes could be costing your business. Some ‘Generation X’ business owners (in their late 40s or 50s) are less clued-up about the most beneficial technology options. Generally they may not be taking advantage of what’s available to streamline business costs e.g. an automated time and attendance system to make it easier to track hours and for payroll. Get professional advice, shop around and be prepared to invest in vital areas which will pay back in the long term.
- Opportunity costs – when business owners are wasting time doing tasks that don’t earn income then you can become a hidden cost. It’s easy to get involved in the details of the business when you should be concentrating on getting new clients, developing your vision and planning ahead. Make sure you are not doing tasks which you pay others to do and seek more efficient ways of doing the same job.
It’s easy to overlook these hidden costs – from license or permit fees, to industry association costs, legal services, employee benefits to utilities. Make a checklist and start working out the cost of each item. However daunting this may seem, unforeseen costs can be hefty and soon add up.
For an efficient and cost-effective way of managing your employee data, setting up alerts, dealing with timesheets and payroll consider a good cloud-based time and attendance system such as uAttend.