What comes to your mind when you think about starting up a new company? Let me reiterate. The costs of research, pre-launch costs, the hurdles you’d likely face, etc. Any well-informed individual will keep all these things in mind with various other factors. Nevertheless, startups still fail. What causes them to fail?
Well, when you think that you have everything covered, that is when you have neglected many essential details. It isn’t cheap and easy to run any business. The expenses that you design for the business are only those that you have come across. In addition to these expenses, there are several unexpected and hidden costs. While there are dozens of reasons for businesses to fail, this remains the most important.
Although the unexpected costs that occur over time in businesses are variable, depending on different factors, here are some of the most common overlooked/unexpected costs that might help you take a business to success.
1. Raising funds
Now all business owners/starters are well aware of the fact that any business requires the capital and funds. Some people resort to selling stocks. However, in the initial stages of a business that is very unlikely to happen and can cause problems. So, the better option is to go for a loan. Usually, business owners have an idea about the costs of a loan.
However, if your business is in the initial stages, without the right financial documents available, the lender is going to set the terms of the loan based on your personal situation. In case you have a bad credit score then its trouble for you. The loan terms will be unfavourable if they exist at all for you. This leads to you spending thousands paying the interests, which is something most people aren’t expecting before starting up.
2. The two Ls (Legal and License fees)
Most people don’t anticipate generating a bunch of legal fees. However, what most people are unaware of is that small businesses are subjected to perky lawsuits. Even though it is easier for new businesses to end up at a settlement, it still has its consequences. The lawsuits might add up to a lot. Moreover, once you have a settlement, the insurance is likely to increase, which is an added expense.
To be able to have any legal issues, a business needs to be authorized first by getting a license. The cost of getting a license varies from place to place and industry to industry. Moreover, these licenses often have to be renewed, and their prices can increase over time depending on the policies of the government. Furthermore, if you are looking to work in several areas, you need to keep in mind the different license costs that vary from place to place.
Insurance doesn’t seem to be an unexpected cost, right? But It can get pricey as well. You just don’t have to have your business insured rather various other things. These include employer’s liability insurance, professional indemnity insurance, public and product liability insurance and building and content insurance. So, there is not just one thing that you need to get insured. It is everything!
4. Professional and Employee expenses (with the perks!)
Having a professional such as a lawyer and accountant work for you is very beneficial for the business in the long run. A lawyer can help you get through the legal issues very smoothly. Meanwhile, an accountant is essential if you want your business to be funded by a loan. But for new businesses, these are costly, and most people don’t hire professionals. However, the need to hire a professional may arise.
Additionally, it is not just enough to pre-calculate the salaries of employees you are going to hire. If you don’t add up the benefits and perks, then these unexpected costs will put you in a bad situation. The perks and benefits are essential to keep up the morale and performance of the employees.
5. Tech and equipment
In the modern era, it is impossible to survive without the latest technology and equipment. There are many little things that one overlooks while calculating the cost of these or is simply not expecting them to cost so
much. These include a good internet connection, software licenses, data storage, furniture, stationery, personal computers, and whatnot. Be prepared for this because the last thing on your mind would be to think that these things could cost so much.
This cannot be emphasized upon enough. It happens. No matter how careful and proactive you are, there is no escape from shrinkage. Inventory is lost sometimes on delivery or by theft. There are instances where you will not be able to understand how and when you lost the product. So be prepared to handle this loss professionally.
7. Payment delays on others end!
To be in a good image, you will try your best to never delay any payments. But the people you are working with will not do the same. Expecting them to pay on time will cost you. Your customers may forget to make a payment, or your bank might hold transaction for days. This may lead you to delay a payment at your end. The result? Your credit score will decline, and several other problems can arise.
As much as you prepare for an emergency, you can never be sure about the future. This is the most unexpected cost that can occur, and it is a thing. Emergencies happen, and they vary from industry to industry and the sector that you are working in. They can be extraordinarily minor or overwhelming.
On a concluding note:
All these are some of the most common unexpected costs that you may overlook while starting a business. Keeping these in mind will help you overcome a lot of hurdles. However, all of these apply to different businesses in different intensities. Some may be bad for one company and worse for another.
If you are looking to startup, the don’t let the cost forming your business today stop you, at Pearl Accountants you can form your business for only £1.
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.