Managing your cash flow is incredibly important for small- and medium-sized business owners. 82% of small businesses fail due to cash flow problems. Small businesses often can’t withstand financial setbacks, like unexpected emergencies or late payments.
Not knowing where your money is coming from or going makes this problem exponentially worse. Considering that 60% of small business owners report not knowing much about accounting, this is a major stumbling block for startups.
To help illuminate your financial well-being, we’re going to show you some unexpected expenses of starting and operating a startup.
Here are some of the unexpected expenses of running a startup.
The Hidden Costs of Running a Startup
It’s never been easier to start a business than it is today. The Internet’s made it possible for regular people with a little business background to come up with an excellent idea, start a website, and begin their journey into the digital economy.
This ease is both a blessing and a curse for startup owners. On the plus side, it gives people without the unlimited cash flow to start their own independently-owned business. This is good for the economy as well as for society as a whole, bringing fresh new ideas and innovations into every industry.
The downside is that a lot of people are also going into business for themselves with little training, experience, or awareness of what it takes to run a successful business.
Everything is a hidden cost if you don’t know what you’re looking for or what to expect. To start, let’s take a look at some common business expenses of creating a startup.
Common Startup Expenses
Before we delve into the fine print of hidden startup costs, let’s take a look at some common costs of creating your own startup.
Some Common Startup Expenses Include:
- Incorporation Fee: Under $400 CAD
- Equipment Costs: $13353.95 – $166924.38 CAD
- Office Space: $133.54 – $1335.40 CAD
- Inventory: Up to 25% of the budget
- Marketing: Up to 10% of the budget
- Website: Around $33.38 CAD/monthly
- Office Supplies and Furniture: 10% of the total budget
- Utilities: Around $2.67/per square foot
- Payroll: 25 – 50% of the total budget
While these expenses are going to vary from business to business, you’re already starting to see that expenses can rack up quickly when you’re running a startup.
All too often, small business owners and entrepreneurs don’t think about how to make their businesses scalable, either. They think of doing everything themselves, so they fail to factor in payroll expenses or even rent for an office space!
Now let’s delve into the true hidden costs of running a startup.
Permits and Licenses
Running a startup starts with getting set up as a business. You’re going to need a business license or permit to conduct business in your province. Keep in mind that business licenses often need to be renewed periodically, so factor that into your budget.
Just getting a business permit or license is the bare bones of what it takes to launch a startup. You’re probably going to need help spreading the word on your new business, as well. This could require joining some networking communities in your area.
Joining professional communities usually also requires some form of fee. These expenses could be recurring, as well.
As we stated at the beginning of this article, many small businesses and startups can’t afford a financial setback, even a minor one. That makes insurance an important expense. It’s often overlooked when business owners are creating their startup budgets, unfortunately.
There are multiple types of insurance, as well. Your startup may need multiple different types of insurance for complete coverage. This can add up quickly.
At a bare minimum, you should have public liability and employer liability insurance. Property insurance is a good idea to have, also, in case your building is damaged. It’s a good idea to have insurance for negligence, insurance, and illness, as well.
If you’re working in retail or carry a physical product in any way, you should prepare for losses. Shrinkage is the official name for theft which is, unfortunately, a reality no matter how great your security is.
U.S. retailers report that 1.4% of their annual budgets go towards shrinkage.
Shrinkage doesn’t only include theft, either. It can also include short shipments from your suppliers. Shrinkage can also occur due to mispacked orders or damaged goods.
If your cash flow is limited, which is often the case with startups and small businesses, delayed payments can throw a wrench in your works. Unfortunately, late payments are all-too-common in business, especially during times of economic uncertainty.
Payments can be delayed for all manner of reasons. A customer might forget to pay their bill. Your bank could take longer to process a payment than anticipated. Vendors may forget to pay you what you’re owed.
Even something as simple as a holiday can cause your payments to be late. While we may be flexible and understanding about late payments, our creditors might not be so understanding.
To help account for late payments, you should try and keep a backlog of operating expenses for at least three months. This will help you weather out any unexpected financial shortcomings.
Accounting for hidden expenses helps ensure that your business stays operational while you’re getting established. Small businesses and startups are such an essential component of the economy. It’s in everyone’s best interest that your business flourishes and prospers!
Looking for More Financial Insights?
Knowledge is power! Information technology makes us more powerful than ever, as business owners and entrepreneurs.
Whether you’re looking to unearth the hidden expenses of running a startup or creating social media advertising campaigns, a digital bookkeeper helps your business stay within your budget and operating efficiently.
If you’d like to discover the power of having a small business accountant in your corner, contact us today!
Until the next time,