Starting a business can actually be a lot cheaper than most people think. Indeed, all many entrepreneurs really need is a laptop, a website and enough stock to begin trading.
However, once your business starts to grow, it's a completely different story, because your expenses can quickly rise. Therefore, given that roughly 20% of new businesses fold within the first year, it is worth investing the time to gain a firm handle on your expenditure and cash flow.
A great way to do that is to understand the expenses you might face and plan for them accordingly. With that in mind, let’s take a look at seven costs you should account for.
1. Licences, Permits and Professional Fees
Many businesses need licences, registrations or council permits before they can begin operating. Some may need them as their services grow. Depending on the industry you operate in, certain fees may only need to be paid once, while others must be renewed every year. You may also need to engage the services of an accountant or lawyer to help with contracts, taxes, or your business structure.
These costs are easy to miss because they are not directly linked to selling a product or service. However, they are often mandatory. Hence, you should always make room for them in your budget.
2. Business Insurance
Business insurance is essential because it protects your company against unexpected financial losses, legal penalties, and sudden operational shutdowns. However, this can be a potentially expensive outlay because, depending on the work you do, you may need several types of cover.
Some of the most commonly required types of business insurance include:
- Public liability
- Professional indemnity
- Product liability
- Cyber insurance
- Commercial vehicle insurance
- Workers’ compensation insurance (If you hire staff)
Your premiums can vary depending on factors such as your industry, business size, annual revenue, and level of risk. Therefore, it is worth comparing different providers to find the best deal.
3. Business Vehicles
If transportation is central to your business, then you’ll likely need one or more cars, vans, or trucks. In particular, for deliveries, client visits or carrying equipment. For this reason, it is a good idea to car financing options by award-winning lender Azora if you are not in a position to buy them outright.
You’ll obviously need to budget for these costs. But alongside them are several other costs to consider. They include:
- Registration
- Insurance
- Fuel
- Servicing
- Repairs
- Tyres
- Tolls
- Parking
It is important to give accurate records of your business travel and vehicle expenses to your accountant to determine what you can claim at tax time.
4. Software Subscriptions
It may not have been the case 20 years ago. But most new businesses now use several online tools to help with their daily operations. These may include:
- Accounting software
- Cloud storage
- Website hosting
- Email marketing
- Video meeting platforms
While many services start with a free or low-cost plan, you usually have to pay a decent monthly sum to get the full functionality and benefit from them. This is particularly true if you scale and therefore need more users, storage or features.
It is worth writing down every subscription you’ve got and determining whether each is billed monthly or annually. Doing this will help with your cash flow and financial planning.
Periodically, you should also check whether you still use each service. It is amazing how many businesses regularly fork out money for something they no longer use. If you find one, then cancel it immediately.
5. Marketing
All businesses need marketing to reach new customers and maintain relationships with existing ones. There are also plenty of ways you can promote your company to your target audience. They include:
- Website
- Digital Marketing
- Online advertising
- Traditional advertising
- Social media
- Signage
- Photography
- Printed materials
All of these activities cost money and are typically spread out over the year, which means you’ll always have to have enough capital to cover them.
For every marketing dollar you spend, it is essential to closely track your ROI. You should also test your campaigns and adjust them if they are being successful or not making as good an impact as you would like.
6. Hiring and Training Staff
Staff are often the biggest expense a company has. But it is also the most critical because without well-trained and efficient employees, you may not even have a business to speak of.
Every employee, of course, has a wage. But on top of that, you’ll also need to pay for superannuation, workers’ compensation insurance, leave entitlements and payroll tax. Additionally, you may need a computer, a phone, a uniform, tools, or safety equipment for them to use.
Then, of course, you might need to pay to advertise the role or use a recruitment agency. Once hired, training is another cost to factor into the equation.
As a result, it is worth determining the total annual cost of hiring someone for a full-time position. Outsourcing to a contractor might be a more suitable option if you only need a particular skill set for a short period.
7. Tax and Unexpected Expenses
Benjamin Franklin famously said, “Nothing can be said to be certain, except death and taxes”. With that in mind, something you need to get to grips with pretty quickly in business is that not all the money paid by customers belongs to you. Indeed, a significant portion may need to be set aside for GST, income tax, superannuation, or other payments.
It is a good idea to move money into a separate account for tax as soon as you receive it. This makes it less likely that you will spend money needed for a future tax bill.
You should also build an emergency fund to cover events such as broken equipment, slow sales, late customer payments or higher supplier prices. As a general rule of thumb, having three to six months of essential expenses will provide you with the safety net you need to ride out times of low sales or poor cash flow.