Everyone knows opening a business is an investment and possible risk. However, first-time business owners aren’t usually aware of the extra expenses that are involved with the process. There’s a lot more you have to budget for in the beginning other than the inventory and space your business is situated in. Here are the most unexpected expenses that come with starting a new business.
Insurance itself isn’t exactly unexpected; you need it to protect yourself from various forms of liability. It’s the cost of insurance that can catch you off-guard. Regardless of whether your business is big or small, insurance can keep it from crumbling. You’d be shocked at how easily a business can fail because of a minor issue. Getting various types of insurance such as general liability, product liability, professional liability and worker’s compensation insurance can rapidly increase the price.
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Taxes have the same situation insurance does as where you know you have to pay them, but the cost is constantly fluctuating. Depending on what kind of business you’re running, you must pay a rather large percentage. For example, if you’re a small business, the Small Business Administration has concluded the average tax rate is approximately 20 percent. With only one owner of a business, they can pay as little as 13 percent as where a business with multiple owners has to pay almost 25 percent. If you’re not good at keeping accurate financial records, enlist the help of a certified accountant or bookkeeper. This will prevent unpleasant surprises come tax time.
Now it’s time to get into the truly unexpected expenses. One of them involves the loans you’ve taken out. In fact, loans can become a financial burden themselves. If you’re interest rate is too high, paying off your outstanding balances at any point in the near future can seem virtually impossible. In fact, paying your business loan, personal loans and even student loans separately can drain your funds every month.
Consolidating your loans, however, can help ease the stress of having multiple payments to make. In regards to loans, consolidating them means combining them all into one payment. For example, you can combine the student loan you have with a private lender with the other loans we briefly mentioned. Contact your lender to see if they’re willing to do a private student loan consolidation and save on your overall monthly expenses.
Another example of unexpected expenses involves your personal ones. This means things such as bills, eating out and buying coffee drinks, all of which can cause financial strain. Until you’re continually making a profit each month, you should consider cutting back on certain things. For instance, cutting out your daily coffee can help you save money. The average price of a coffee is about $3 to $5. Since there are typically 30 days in a month, you can save up to $90 to as much as $150 a month for your business by cutting out coffee drinks. That can then be used to pay down your debt or put in your savings account.
You only have to worry about shrinkage if your business sells actual products. Shrinkage is when you lose inventory albeit from damage, theft or a mistake caused by your employee. Losing only a small bit of inventory wouldn’t impact your business much; the most that happens is that you lose a little bit of money you can easily replace. But losing too much inventory can lead to a massive financial loss, which increases the risk of your business shutting down. To avoid shrinkage as much as possible, you need to quickly identify what is causing it and take the appropriate means of prevention.
Your trusted employees are what keeps your business running. However, they don’t keep your business intact for free. Like you, your employees are also hoping to make a profit and they depend on you to provide it. Depending on how much you charge, paying your employees can be one of the most expensive aspects of your business. If anything, keeping your employees paid and satisfied should be your number one priority. Should you find yourself unable to pay some of your employees, you may have to downsize.
Regardless of business sector, you need to plan for the unexpected. In addition to your finances, jot down things you see as a potential problem and then come up with viable solutions. Even if they never happen, you’ll still have a peace of mind knowing you’re ready for anything.