Running a business is expensive. When inexperienced entrepreneurs start planning for the launch and sustenance of their businesses, they naturally get lost in thought about the potential money they can make — the revenue coming in — rather than the expenses they’ll incur to keep the business running. They often consider what it takes to get started, such as equipment costs, and cost bases for their main products, such as wholesale figures, but some expenses are frequently neglected.
It’s important to recognize these expenses in the planning phase, or they’ll present a nasty surprise down the road:
1. Taxes. Corporate taxes can get complicated fast, even if you’re a one-person operation. The good news is you won’t be paying much in the way of taxes until you start actually making money; but once that revenue starts coming in, you need to know exactly how much of it needs to be squirreled away for taxes. Do your research and build these costs into your profitability model; otherwise, you’ll be in for a rude awakening come tax season, when you realize you aren’t making nearly as much money as you thought you’d be.
2. Insurance. Insurance is often at the bottom of the list when it comes to cost considerations for a new business. There are many types of business insurance, and your company may not need all of them, but you need to be aware of your needs. For example, you may need general liability, product liability, or even professional liability insurances depending on what you offer. You may also need commercial property insurance, or other types of insurance as you see fit.
3. Additional human resources. From the outset, you’ll probably underestimate the amount of help you’re going to need. Human resources are expensive, especially if you’re hiring full-timers, so naturally, most entrepreneurs hire as few people as possible to start. But all it takes is a sudden ramp-up in customer needs for you to scramble for new hires. Those hires can throw a major wrench in your financial projections, so try to plan conservatively, with backup plans for freelancers and part-timers as needed.
4. Emergency repairs. An infinite number of things can go wrong in your business. A piece of equipment could fail. Your windows could get broken. Your employee could drop their phone into water. Equipment can get stolen. These aren’t expenses you can accurately predict or anticipate, so when they come up, they can wreak havoc on an otherwise sound budget. The best approach here is to leave a little wiggle room for general emergencies and unexpected expenses. That way, you’re prepared for practically anything that comes up.
5. Subscription software. Whether you’re running a content marketing campaign or just trying to keep track of your inventory, you’re probably going to need subscription software to get the job done. The word “need” here is a bit subjective; of course, it’s always possible to do these jobs manually, but the automation should save you labor costs over time. The problem is, these subscription software packages cost upwards of a few hundred or even a few thousand dollars a month, and if you aren’t prepared for those hits, you’ll face a serious uphill battle in the early stages of your business’s growth.
6. Utilities. Most entrepreneurs are savvy enough to project the cost of rent into their financial models, regardless of whether or not they’ve found a space, but have you thought about the utilities? Depending on the size and location of your business, you could easily end up paying hundreds of dollars a month in Internet costs, with more expenditures for electricity, phone service, water, janitorial services, and gas. Do some background research by asking business owners in the area what they typically pay in utility costs.
7. Employee expenses. If you’re working with a small crew or working by yourself, you won’t have much to worry about here, but any more than a few employees, and you’ll start shelling out significant employee expenses — even for basic needs. For example, you’ll have to keep your office stocked with supplies so they can work efficiently. You’ll also need to reimburse them for certain kinds of travel, food, and other items they need in the process of doing their jobs.
These are just a few of the expenses that can sneak up on you as an entrepreneur. No matter how well you plan your financials, there’s no way for you to account for everything, but the more thorough you are in the planning process, the better. Investors and partners want to see that you’ve done your research, so including these items in your calculations can go significant extra distance in proving the legitimacy of your model. In the meantime, brace yourself for a world of surprises; entrepreneurship never goes exactly the way you think it will.
For more content like this, be sure to check out my podcast, The Entrepreneur Cast!