Accounting & Finance
5 Hidden Costs Of Starting And Running A Business
Starting and running a business isn’t cheap. As the old adage goes, it takes money to make money, which has never been truer than when starting a venture. So when creating your budget plan, you must include all the costs of running a business.
Knowing what expenses go into running a business can help you not only start the business but ensure you remain in business. Here are five business expenses you need to take into consideration.
1. Employee Benefits and Perks
In addition to wages, there are several employee costs that you must take into account when running your business. Payroll taxes, benefits, and retirement plans are some expenses that, when not accounted for, could cause your business to run red. Adding more nominal fees, such as paid time off, training, conferences, employee turnover costs, and office perks are also essential, as they can add up very quickly.
When you start your business, you might not need a lot of insurance. At the bare minimum, you’ll need liability insurance to protect yourself from liability risks imposed by lawsuits or similar claims. As time goes by, you’ll need more insurance policies to protect your business. This includes worker’s compensation insurance, errors and omissions insurance, property insurance, and business interruption insurance.
The type of policy and amount of insurance coverage you need will depend on several factors, including the type of business, size of business, number of employees, risk factors, and revenue. These hidden costs can make it hard to stay on track if you don’t include them in your business plan.
Taxes can be an unpleasant surprise for new business owners, especially if they aren’t generating money. Even if you aren’t making much, paying taxes can hurt your business in the first few years. One type of tax you need to pay is the self-employment tax which is more than 8% of your adjusted gross income. You’ll also pay additional taxes every year to incorporate your business, whether you have revenue or not.
Many resources on the internet can help you estimate the total amount of taxes you’ll need to fulfill your initial expenses. A business startup cost calculator can provide a rough estimate of all the taxes and fees required when starting and running your business. It can also estimate the total capital you’ll need during your first year in business.
4. Legal Fees
Legal fees are the number one hidden cost for small businesses. This is because small companies are victims of frivolous lawsuits as they are more likely than large organizations to settle rather than litigate. In 2008, small businesses’ tort liability price tag was 105.4 billion dollars. Fixing cases for small businesses costs less than $5,000, but even as low as $1,000 can be significant for a small business.
5. Administrative Costs
These costs will sneak up on you if you don’t include them in your business budget plan. The prices include all essential office equipment like desks, chairs, computers, filing cabinets, printers, utilities, software, and office cleaning equipment.
Planning your business budget is one of entrepreneurship’s most stressful but essential parts. Including these five hidden costs in the budget can go a long way toward getting your business up and running.