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It's no secret that it takes money to make money. For an inexperienced entrepreneur however, the startup journey can be a minefield of costs - some obvious and others a little less so.
It's absolutely critical that new business owners plan for hidden costs. Pricing decisions, staffing plans, and many other business decisions rely on an accurate accounting of costs.
A failure to incorporate hidden costs into your business planning process can spell disaster not just for your growth plans but for your business as a whole.
So how do you consider hidden costs if they're, well, hidden?
Talk to other entrepreneurs. Relying on the insight of others who have taken the same path you are on can be invaluable.
It's also a good idea to fully research startup costs both obvious and hidden before commiting to a single decision.
Not sure where to start? You're in the right place!
Keep reading for a quick summary of five hidden costs you can't afford to ignore in your entrepreneurial journey.
By the way, not sure you have a handle on even the obvious start-up costs? Not to worry, you can refresh your memory here.
If you can buy it, you might want to insure it.
Insurance is an important business longevity consideration and you'll be surprised at just how many ways you might want to insure your business.
More protection means more cost and these monthly can add up while slipping under your business planning radar.
Shop around for property, general liability, and auto insurance quotes to make sure you’re getting the right level of insurance for a competitive price.
Some of the top auto insurance companies, and even those specializing in business insurance, offer different protection tiers so that you can purchase as little or as much insurance as you need for your new venture.
These plans are especially helpful for business that are just starting out. The level of coverage you purchase can grow with your business!
2. Loan Repayments
Debt financing, or the funding of your business via financial borrowing, is a common form of startup funding. Regardless of where the loan comes from, the lender expects to be repaid and that means you will be on the hook for regular payments.
Even though you know you will have to repay those loans on a regular basis it can be all to easy to forget to factor payments into a financial plan. Failing to make loan payments can mean a hit on your business' credit and can incur fines or other fees.
Long story short, have a firm repayment plan in place before you sign any documents with a lender.
If you’ve decided to rent out an office space or retail store for your new business, utility bills will become an essential consideration. Electricity, gas, and water are the basics, but you may also have sewer costs and other seasonal rates.
Some entrepreneurs bypass these costs by working from home, while others consider more affordable options like serviced offices with one, all-inclusive monthly fee.
Utility costs can fluctuate from one month to the next, can increase with colder seasons depending on the region your business is based, and failure to pay can result in fees or other penalties.
Plan ahead and be prepared to take care of fluctuating utility costs to ensure that your business runs smoothly and without interruption.
4. Administration Costs
When you’re offering products or services as a small business owner, you generally have a fair idea of what these cost you before incorporating them into your pricing structure. You might calculate your profit margin based on these offerings alone, but administration costs can also be essential to consider to ensure you can make a profit.
Administration costs can come from a wide range of sources. This could be anything from software subscriptions and computer equipment, to cleaning supplies, and printer toner.
Of course these things are necessary for running your business, but they aren't things you can charge customers for directly. The only way to recoup these costs is to factor them into the price of your products or services.
Failing to factor these (sometimes) hidden costs into your pricing structure means having to cut corners down the road when costs catch up to you.
There are only two things that are certain: death and taxes.
Taxes are a costs that entrepreneurs have to wrangle no matter the shape their business takes. Working for yourself means you must pay self-employment tax. This tax type consists of Medicare and Social Security taxes, similar to what is withheld from wage earners. The tax rate is 15.3%, and you can file this tax with Form 1040 or 1040-SR.
Failing to take taxes into account can mean expensive surprises down the road. And no business can afford to skip paying taxes - the IRS will close your doors for good if it comes to that.
The Bottom Line
It takes money to make money, but not all of the costs that entrepreneurs face are obvious.
The stakes for missing or failing to account for business costs can be high but that shouldn't be a deterrent on your entrepreneurial path.
The best thing you can do is move forward and tackle those challenges head on - knowledge is power, and when you can nail down hidden business startup costs, you are in the right position to make a real change in the success of your business!