As any small business owner knows, there are many costs that come with running a business. Many of these costs are pretty straightforward— including obvious costs like paying rent for your retail or office space, buying equipment, and paying employees.
Some costs are less obvious. These costs may be draining your company’s finances and before you realize it, are seriously jeopardizing your ability to do business or keep your doors open.
There are several questions every business owner should be able to answer about their finances. One of them includes: where can I save money?
Answering that question requires you to be able to identify the hidden costs straining company finances. Here are seven hidden costs that may be costing you money.
7 Hidden Costs Affecting Your Business’s Bottom Line
As the adage goes, it takes money to make money. But it’s important that you can identify which costs are necessary for your business, and which are not. Some of these hidden business costs are sneakier than others.
Here are seven business costs you need to be aware of— and how they can potentially be an unnecessary drain on your finances and if you’re not careful, catch you off-guard.
1. Office Space
Paying rent for your building space doesn’t sound like a hidden cost— probably quite the opposite. However, there can be a lot of hidden costs involved if your office space isn’t ideal or well-suited to your business’s needs.
There’s a lot to consider about your location.
Do you need a large warehouse to store and process your inventory, or do you just need a small suite in an office building?
Do you want to sign onto a short lease and plan for expansion, or do you plan to stay in the same location for years to come?
How many employees do you need to accommodate?
How much will it cost to keep the lights on?
And don’t forget about the cost of professional services like landscapers or repairmen.
If your office is too small for your business needs, it seems reasonable to expand to a larger space. But if your office space— and its bills— are bigger than you need, it may be a good idea to downsize to a more efficient space. Or maybe, you may be able to forgo the office space altogether.
Does Your Small Business Still Need Office Space?
In a post-pandemic world, many businesses large and small are shifting more towards a work-from-home (WFH) model. If your business would still operate fine even beyond the office space, it may be worth your while to consider a fully remote business model.
A survey from HiveDesk asked small business owners about the impact working from home during the pandemic had on their businesses. Two out of every three small businesses either plans on having a smaller office or none at all. This is because there are financial benefits to a WFH business model.
A smaller office— or working entirely from home— would reduce or even eliminate monthly rent payments and lease agreements. Businesses would also spend significantly less on energy and utility costs, as well as professional services. This means that you could potentially allocate those funds to other parts of the company, like employee benefits or putting more money towards any unexpected costs.
2. Permits and Licenses
All small businesses require the proper permits and licenses to set up shop in their community. You’ll always need at least a general business license to get started. Other businesses will require additional permits— such as a seller’s permit if you sell products in-store or online, food handlers permits or a liquor license for any place that sells food and alcohol, as well as health permits, zoning permits, et cetera.
Permits are not a “one and done” kind of deal either— in order to stay in business, you need to renew your permits and keep them up to date, which costs money.
To keep these costs from catching you off-guard, make sure you are figuring any and all licensing costs and renewal fees into your finances. Always be aware of the expiration dates of each permit and license— that way you can renew them on time and keep things running smoothly.
3. Business Loans
Most businesses require loans to get started. Of course, loans aren’t free money and they need to be repaid. Typically, you’d pay part of your loan balance each month over the course of years. But there’s more to pay each month than just the loan balance— you need to stay on top of the interest you’ve accrued on your loan also.
Staying current on your loans is good for your credit score and helps keep your payments manageable. Falling behind on your loans not only hurts your credit score, but it also makes it harder for your business to pay back what it owes.
To stay on top of your loan payments, make sure to include these expenses in the overall monthly cost.
All small businesses need insurance for protection against the unexpected. Not to mention, it’s usually required. Insurance needs may include:
- Commercial property insurance, which protects your office space against fire, smoke, and vandalism.
- General liability insurance to protect your business in the event of— for example— someone getting injured on your property and requiring medical attention, as well as any legal fees.
- Product liability insurance, which protects your business against the financial loss from a defective product.
These business insurance policies typically cost anywhere around $1000 or more a month, so it’s important to keep any monthly payments or even changes in fees accounted for so your business can stay protected no matter what.
5. Repairing or Replacing Equipment
The best tools are only as good as the hands that use them. But using broken or outdated tools— from computers to machinery to kitchen knives— can affect your productivity and hurt your bottom line.
Once your business’s tools aren’t working as they should, it’s important to replace them as soon as possible.
It’s hard to anticipate when you’ll need to buy new equipment for your company, or send out for repairs. When— not if— this happens, it’s important to consider how much it would cost you to repair or replace these tools.
You can never accurately plan for when you’ll need to replace some or all equipment, but knowing how much you can expect to spend can help prevent some potentially nasty surprises when you least expect them.
Unforeseen costs like sudden maintenance costs or replacing important tools aren’t easy to plan for— but it’s important that you keep some funding saved just for this occasion. It can prevent a lot of turmoil later on.
6. Employee Expenses
Your employees are vital to your company’s success. When hiring employees, their salary and benefits aren’t the only financial aspects your business needs to consider to prevent employee turnover.
It’s expensive for your business when an employee leaves— it costs your company about one-fifth of that person’s salary to replace them. This includes costs like advertising and training. Posting a job listing and interviewing candidates aren’t free either— the listings themselves will cost some money. They can get even more expensive if you’ve been having a hard time filling that position.
Not only that, but hiring the wrong employee can end up costing your business too. A poor fit in your company can create unnecessary costs as a result of wasted time and lost revenue. On the other hand, taking the extra care to ensure you find and hire the right employees can keep costs down.
And once you’ve hired your employees, you need to consider labor cost and what employee benefits you offer them. Some of these benefits don’t have to be expensive— these can include allowing your employees to telecommute or work from home or to work on a flexible schedule. As a result, this can help keep them happier, helping to ensure that employee turnover is minimal.
We’ve seen some amazing technological advances in the last 30 years. Technology definitely makes parts of running a business easier— but those costs can really add up if you’re not careful.
This doesn’t just mean the cost of computers either— computers are expensive, and desktop computers actually use 80 percent more energy than laptops!
Other technological expenses can include:
- Your monthly internet bill, as well as your router and modem.
- Server fees, including upkeep.
- Information Technology (IT) and tech support.
- Building and hosting your website.
- Business software. Purchasing software to support your business isn’t always cheap. Some software such as Intuit QuickBooks, require a monthly subscription fee to use. However, these online subscriptions are priced according to what features are available, so you won’t have to pay for extra features that you won’t use.
Part of this extends into repairing or replacing equipment— it’s not always easy to tell if your server will crash or if your programs become obsolete, but keeping funds prepared for such an expense can help keep everything running like clockwork.
The Best Way to Keep Up With Hidden Costs? Keep Detailed and Organized Books
There are so many hidden costs of business out there that it’s impossible to list them all. This is why it’s so important to be aware of any and all expenses your company incurs— and to keep accurate and detailed books. Diligent bookkeeping can help business owners know exactly where they stand with their finances, so that when— not if— unexpected expenses happen, you’re ready for them.
Need help getting your books in order? Mission Accounting can help.
Bernard Roesch, MISSION Accounting’s founder, is a Harvard MBA and a QuickBooks ProAdvisor. He has over 25 years of experience in advising his clients and helping them make smart and profitable business decisions.
Bernard and his team of QuickBooks experts can also help you choose the right QuickBooks version and help your business unleash the full power of QuickBooks to help your business and its finances thrive.
Contact us at MISSION Accounting today to schedule a complimentary consultation for your QuickBooks software needs. We’re here to help you find solutions to all your business’s financial needs and make keeping track of your finances infinitely easier.