The Costs That Small Businesses Need To Be Aware Of
There are many costs that small businesses need to be aware of to ensure that their operations are financially viable. Too many new business owners have a winning idea or are experts in their industry but don’t have any knowledge or experience when it comes to running a business. It is always what you don’t know that is most dangerous in business so having a full understanding of the costs involved is vital to success.
To help every small business owner organise their finances effectively, here are the most important costs to be aware of.
Business Licences and Permits
The first set of costs that you need to consider is the business licences and permits that you need to operate. These depend on the industry you are working in with some industries requiring more licences than others.
Prices for licences and permits can vary significantly but the UK Government website has a full guide on the different paperwork you may need depending on what industry you are in. Make sure that you have all the necessary licences before you start trading to avoid any unpleasant surprises. There can be serious fines for not having the correct documentation so it’s important to get them sorted as soon as possible.
Office Rent and Bills
If you have a traditional brick and mortar business then you will need to rent an office space to run your company. You will also need to pay for utilities, internet and phone bills as well as any renovations or decorations to make the space fit for purpose. You may have the option of renting an office space with some or all of these services included but they are not cheap so it’s important that you compare prices before committing yourself long-term.
Office rent prices vary depending on the location and size of the office space. You can use online tools such as Office Space in London or The Desk Fairy to get an idea of average prices in your area. Bills for utilities, internet and phone can also be quite expensive so it’s important to shop around for the best deals. You can use price comparison websites such as MoneySuperMarket or Comparethemarket to find the best rates.
Business Equipment and Maintenance
Buying all of the tools and equipment you need to run your business can also be very expensive depending on your industry. You will need to factor in the cost of purchasing new equipment, maintaining and repairing existing equipment as well as storage and transportation.
It’s important that you do your research to find the best deals on business equipment. You can often get good deals by buying second-hand or refurbished equipment. It’s also a good idea to buy any necessary software licences upfront as these can be very expensive if you wait until later on.
You should also budget for regular maintenance and repairs as breakdowns can be costly and disruptive to your business. The longer a key piece of equipment is out of commissions, the more money your business will lose so make sure you have enough money put aside to fix any issues without delay.
Software and Licences
Every small business can benefit from using the right software no matter the industry as it can help you with everything from bookkeeping to marketing. However, business software can be expensive so it’s important that you factor in the cost when making your budget.
You may also need to purchase specific software licenses for certain tasks such as using Microsoft Office or Adobe Photoshop. These licenses are usually quite expensive so it’s important that you factor them into your budget from the start. However, you may be able to save money by buying software licences in bulk or through specialist retailers. There are also various free open-source software alternatives that you can use if your budget is tight.
Salaries and Benefits
As your business grows and you begin to hire new employees, their salaries and other benefits can become a major outgoing for your business. In order to hold onto the best talent, you will need to pay them accordingly so this isn’t an area where you should look to penny-pinch.
As well as employee compensation, you may also need to pay for specific training courses or qualifications to give your employees the right skills and experience. Just remember that these extra costs will be worth it if it means that your employees are more productive in the long run.
You should also budget for payroll taxes, pension contributions and other employee benefits such as health insurance if you intend to offer these to your employees. These can be very expensive, particularly as your teams start to grow, so it’s important to factor them into your overall budget.
Finding the best talent can be difficult but it is a crucial step in growing and sustaining a successful small business. Depending on your industry, you may be able to save time and maximise your chances of finding the best fit for your company by going through an experienced recruiter. The downside of this, of course, is that recruitment agencies usually charge fees for their services and these fees can be expensive.
It is worth remembering, however, that an employee with the right skills and qualifications will actually save you money over time as they will be more efficient and productive. If you recruit the wrong person, however, you may just find yourself needing to replace them after only a short amount of time which isn’t always easy to do. This is why it is worth spending that extra time and money on recruiting the right team members so that your business can thrive.
Business insurance is another cost that many small businesses overlook when making their budgets but failing to take out the right cover could prove catastrophic if anything were to go wrong with your equipment, premises or employees.
There are various types of insurance your small business may need depending on your industry and operations including fleet insurance, public liability insurance, employers’ liability insurance and professional indemnity insurance. Without the right insurance protections in place, you may be held liable for any injuries or damages that occur as a result of your business.
This is why it’s important to speak to an insurance broker who can assess your specific needs and find the best insurance policy for your business. While there are some areas of business where costs can be cut, you should never skimp on insurance as this could end up costing you much more in the long run if something does go wrong.
If your company sells products or uses raw materials then inventory is another major cost to factor into your financial calculations. When you first start out, it can be difficult to know how much inventory to keep when you haven’t had any orders yet and there are no previous years’ sales numbers to refer to. Ultimately, the right amount of inventory to buy will depend on a number of factors including your inventory turnover, the type of products you sell and the cost of storing them before sales.
There are various ways to manage inventory including using a stock control system, investing in inventory software or running all orders through an external supplier. It’s important that you decide on the right method for your business so that you don’t put your business in financial trouble by overspending on surplus stock. Err on the side of caution when you first start out and you can add more inventory when you are more confident about your sales numbers.
Market Research Costs
Identifying who your potential customers are and what they want from your products or services is crucial for building a successful small business. Market research involves identifying your target market, carrying out customer surveys and testing what the competition is offering. There are various tools available for market research including focus groups, surveys and interviews.