Some Hidden Cost of Business While Starting
- Hidden Cost of Business
Hidden Cost of Business
It is never an easy or a cheap task to run a successful business. And when it comes to the matter of startup for the businessman or an entrepreneur, it is totally a mammoth’s task.
You might find that you’ve heard of this practice, but don’t really know what it is. For instance, there are some businesses that advertise to save you money or as a form of high interest savings. However, this cost saving is hidden, if you’re not paying attention. You’re also not even aware of the actual cost of the product you’re purchasing. Here’s how it works and where it can be found:
The real costs of doing business usually are not broken down or offered up for sale, but it is really a monthly payment that you make towards having your work in business. What I mean by this is that most people do not take the time to evaluate what they’re getting for their dollar in terms of cost of business, or in the case of professional services, their final bill. We take a one-time payment and let the “professional” people talk about the cost of doing business. Yet, most of the work that these people do is simply salary- or commission-based. This means that it is just as true for these companies as it is for you. Therefore, there’s no need to put a price tag on it, because it will always be equal or possibly more than the price of what you’re purchasing. The only thing that’s a question is where the real cost of business can be found.
This is where you can find the hidden costs of business, because your own personal relationships with the people who are representing you in business can include things such as (but are not limited to) travel expenses, which can be very expensive. Many times you have to pay to be treated at a professional event that your company holds or pay a handsome fee to a non-professional photographer that takes pictures of you. What is left out of the equation is the real cost of business in your pocketbook. You need to understand that as a person in business, you are directly responsible for your own cost of business.
A recent study has shown that for a startup to kickoff, an average of $30,000 capital money is required. This money is mostly needed for real estate, website development, initial inventory, opening promotions, fees for licenses and other things that go into opening the business.
But this is just the beginning as it gets tricky when the business starts to get established. As establishment is a long-term matter, many hidden costs of business pop up. If the businessman is not ready to tackle these hidden costs, he might soon find himself in deep trouble.
In a recent analysis it was seen that 29 percent of startups fail due to the lack of capital money. While lack of capital money can bring a number of issues, but lack of proper management of finances can also prove challenging.
Managing the hidden costs of business can be quite tricky at times. Proper management of these hidden costs can make a business successful. Here are some of the hidden costs of business.
Expensive loans
Nowadays most of the capital money needed for a startup comes in the form of loan either taken from a bank or from a money lender.
Against this loan the bank or the money lender charges some interest with every passing month. Sometimes if the business fails to give the proper return, the businessman fails to give the interest in time.
This result in the formation of a bad credit score. Sometimes due to spending more money in the payment of interest money, the businessman fails to make the necessary payments which would have been needed for his business to run successfully.
The payment of interest on any loan taken is a hidden cost of business. One can take care of it and save a lot of money by fixing the right amount of credit money in the beginning.
Administrative costs
For running a business properly some basic equipment like computers, phones, printers, filing cabinets, paper clips, office cleaning supplies, software, etc. are needed.
These administrative costs are other hidden costs of business which might look small. But they add up to a significant amount once they are calculated over the course of one year.
Perks and benefits of employees
It is easy to calculate the amount of salary a businessman needs to pay his employees. But often he forgets to add the additional perks and benefits he needs to give an employee in addition to the basic pay. This is another hidden cost of business.
The additional perks and benefits of an employee can include things like employment taxes, workers’ compensation and fringe benefits (healthcare, retirement, vacation, etc.).
Studies have shown that this additional perks and benefits can range from 1.25 to 1.4 times the basic pay, which needs to be calculated and handled beforehand.
Shrinkage
Companies who sell physical products are likely to face this problem more often. Shrinkage can be caused due to many factors like shoplifting, theft by employees, error in paperwork and fraud by a vendor.
A roughly 6 percent loss is estimated due to these factors. It is impossible to avoid shrinkage altogether, but one can prevent it to a great extent by remaining prepared from the beginning.
Insurance policies
As a business starts to flourish, the amount of insurance policies begins to increase. These include general small business insurance, liability insurance, errors and omissions insurance, workers’ compensation insurance, property insurance and cyber insurance.
The amount of insurance can depend on the type of business, location, revenue, previous issues, present risk factors and number of employees. One has to keep in mind about the hidden cost of insurance from the beginning of the business.
Legal fees
The opening of a business will undoubtedly attract lawsuits which will result in giving a lot of money in the form of legal fees.
Small businesses are often the target of lawsuits as trial lawyers know that they will try to settle the case silently unlike the large corporations. These legal fees will later make the insurance premiums to rise which will drive up the hidden cost of business.
Taxes, fees and permits
The tax of an employee is largely automated by the payroll department and most of the bill is covered by the company. But in case of a businessman, things are different. If the business is not making much profit, he still has to pay a hefty amount of tax to the government.
Moreover, various amount of fees are needed to take out permits which would make the business legal. Many entrepreneurs do not know where to spend and they end up spending lots of money in a wrong way.