Unexpected business startup costs
Financial planning is an essential first step for any business owner. Businesses incur many different expenses, from expected costs like physical capital and wages to lesser-known ones like third-party vendor fees. But those unexpected costs can sink even the strongest business models, so understanding what you’re up against financially is crucial to success if you have a startup of your own. In this article, we’ll highlight seven examples of expenses you’ll likely encounter and how to prepare for them.
1. Equipment repairs and replacements
From printers to asphalt pavers, equipment is essential to all kinds of businesses. And when something important breaks, the costs can extend beyond repairs. While your business is on hold waiting for the equipment to become operational again, lost income can pile up quickly. If any part of your operation leans on physical capital, you’ll want to ensure your budget accounts for repairs and replacement. Investing in equipment breakdown insurance can be a great way to help financially plan for these situations.
2. Location and supply cost increases
Some of the costs you pay on a regular basis can increase unexpectedly. The price of supplies may fluctuate as economic conditions change. The location of your business may become more expensive due to a variety of factors – population increase, changing tax rates, even increasingly frequent extreme weather. When these costs rise, there isn’t much to be done except look for better deals or a cheaper location.1 This is why building flexibility into your budget is so important.
3. Business taxes
As local and federal policies change, any tax rates associated with them may change too. Your business may even pay more in taxes as it changes, becoming classified differently by the IRS or losing eligibility for tax credits you previously qualified for. The good news is, while taxes can be a very large expenditure for businesses each year, they’re usually not too difficult to predict. Keeping your financial books organized can help you better manage unavoidable surprises, and staying on the lookout for tax credits may also help you save.2
4. Inventory shrinkage or damage
Inventory can break, spoil, get stolen, and even become unsellable through all kinds of unfortunate circumstances. But if you have less inventory to sell, you may have less profit to make. Since that’s not usually an outcome most business owners would be satisfied with, spending more to restock inventory earlier than originally expected is often the solution. Not much can be done about the restocking cost if your business is experiencing shrinkage, but this is another example of how important flexibility is in a budget.1
5. Hiring new employees
As the adage goes, you need to spend money to make money. It’s often a good sign for your business if it needs to hire more employees, but those new hires won’t come without expense. Besides adding their salaries to your payroll, you’ll also likely spend additional resources recruiting, onboarding and training them.1 Fortunately, new employees should contribute to greater profitability once they’re on your team; it just takes a little extra spending to get there.
6. Professional service fees
Most businesses depend on the services of other businesses to operate. Trucking companies transport inventory and supplies, commercial cleaning companies help keep office spaces tidy, and the businesses that reap the benefits of these services need to pay for them. The choice to seek services in the first place is usually tied to increasing revenue for the business in some other way, but footing the bill still takes financial forethought. Hunt around for good prices, but remember that reliable, professional service is worth paying for. Poorly performed services could end up costing you more in the end.1
7. Business insurance
Business insurance exists to safeguard companies against unexpected costs, but for new business owners, the need for insurance can sometimes be a surprise of its own. Building insurance into your budget at an early stage may help protect you against incidents ranging from worker injuries to data breaches. It'll also help your business maintain compliance with the law, as some forms of insurance (such as workers’ compensation) are legally required. A Nationwide agent can walk you through all the coverages your business will need, plus others that can help protect you against additional unexpected costs.
How to prepare for unexpected business startup costs
Unexpected costs come in all shapes and sizes, so how can business owners like you prepare? Here are a few tips you can use to keep your budget flexible:
- Emergency Fund – Consider having a rainy-day fund. You can add an expense to your budget for regular contributions to an emergency fund - money you’ll leave to accrue in preparation for unexpected costs.
- Open a Credit Line – If you don’t have the money on hand now, you may be able to take on some debt to help in the short run. Applying for a line of credit now may better prepare you when unexpected costs hit.1
- Purchase Insurance – Insurance was made for unexpected costs, and that’s as true for businesses as it is for any entity. Get an obligation-free quote from Nationwide and find out what kind of coverage your business could benefit from.
Preparing your fledgling business for the unexpected starts with careful planning and forethought. Build flexibility into your budget to ensure slight increases won’t capsize your operation, shop around to find good deals wherever possible and invest in a reliable business insurance policy.