To successfully manage a small business, be sure to calculate the actual costs of running a business. Too often, small companies won’t consider the hidden costs of running a business. They typically include loans, licenses and legal paperwork, insurance, office, retail space, and employee benefits. Find out how you can minimize hidden costs to grow your business.
Identifying hidden costs
More than five hundred thousand small businesses are founded monthly in the United States. While opening a new business is exciting, getting started can be challenging. Only 50% of small businesses survive after 5+ years. Meanwhile, only a third will surpass the 10-year mark because of hidden costs.
Starting a small business already has huge outright costs. Most small businesses spend $2,000 to $5,000 before they can take off.
You’ve already organized your budget to buy new inventory, hire staff, purchase equipment, set up your website, and rent retail space. However, if you fail to count the hidden costs, it will be harder for you to pay for necessary expenses.
Hidden costs types
Identifying all hidden costs will help you calculate your profit margins and pricing. With the odds stacked against the survival of small businesses, it’s critical that you properly manage your budget.
Loans
You’ll need funding to launch your business. Most business owners will rely on bank loans to get their money. Lenders look at your personal or business credit scores before approving the loan. You’ll get less favorable repayment options if your credit score is too bad.
Aside from your outstanding capital, remember that you need to pay for the loan interest at some point. If you cannot make payments on time, your compounded interest will increase. This will make it even harder for you to launch your business.
To reduce loan fees, try these strategies:
- Save your money before launching your business.
- Crowdfund from your friends, family, and supporters.
- Improve your credit scores to get favorable loan terms.
- Create a list of alternative lenders and compare their rates.
- Settle other high-interest loans and credit cards to reduce your outstanding interest.
Licenses and legal paperwork
States and cities will require different licenses and permits to begin business operations. The required fees will also vary depending on the business you plan to operate. It can be a partnership, nonprofit, corporation, or limited liability company.
Depending on local regulations, you may also need additional licenses and fees to sell certain products (such as alcoholic beverages). You may also be required to get a permit for operating an oversized business vehicle.
Your business may need a lawyer for many business licenses, contracts, and legal disclaimers. Another high hidden cost is litigation. Since small businesses are more likely to settle than pursue legal action, they are often the target of lawsuits.
Filing regular business reports will require additional fees. To reduce the license and compliance costs, try these strategies:
- Invest in an online business service to reduce the costs of paying for individual professional services.
- Research the required permits and licenses for your state and type of business.
- Check the requirements, deadlines, and frequency of filing business reports.
Insurance
Consider the multiple types of business insurance you need to get. These include general liability, commercial property, commercial auto, professional liability, and unemployment. You may get full business coverage for these insurance plans to save money. Always research the required insurance policies for running a business in your state.
Domestic businesses need to get appropriate insurance and their homeowners’ insurance policy. You may need workers’ compensation insurance if your small business has employees.
To reduce insurance hidden costs, try these strategies:
- Talk to an insurance agent that specializes in small businesses.
- Get an insurance bundle for businesses.
Office / retail space
Renting or purchasing properties for your office or retail space entails several hidden fees. You don’t just pay for the room itself. You pay for a real estate agent, office equipment, receptionist services, meeting spaces, etc. Besides, you need to count utility bills, such as electricity, water, and internet access.
Consider if your business requires an office or retail space. A remote work setup or a temporary office space may be enough for your current business operations.
To reduce office/retail space hidden costs, try these strategies:
- Weigh the pros and cons of a remote setup vs. an office setup.
- Ensure that your leased space covers the cost of utilities.
- Look for utility providers that offer competitive rates to reduce costs.
Employee benefits
As the employer, you need to look into financing your employees. This question includes salaries, payroll taxes, and benefits. By getting these benefits for your employees, you’ll effectively avoid high employee turnover:
- Paid sick, vacation, and maternity leaves.
- Office perks and a comfortable work environment.
- Certifications, training programs, classes, and conferences.
High employee turnover brings higher expenses for training and hiring. It will also result in productivity and knowledge loss. To reduce employee costs, try these strategies:
- Provide regular perks that will boost employee retention.
- Negotiate with your insurance provider.
Avoid hidden costs with GoShip
Shipping is another significant expense for small businesses. It can be challenging to look for reliable and affordable carriers. Because of this, many small businesses settle with the high rates of parcel shipping companies.
GoShip can help your small business cut costs with less-than-truckload and full-truckload shipping options. With GoShip’s online calculator, you can connect with the best shipping companies in your area. Enter your shipment details, and get a free quote in a moment!