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5 Hidden Costs of Running a Business

costs of running a business

An important key to business success is managing cash flow so you have enough money on hand to pay bills when they come due.

In order to do this, you need to budget for expenses, and expect to have unexpected (or not so obvious) costs.

Below are some hidden costs that can drain your cash — unless you plan for them.

1. Shrinkage

No, it’s not a condition described on Seinfeld. It’s a reduction in inventory resulting from employee theft, shoplifting and administrative errors.

The Global Retail Barometer pegs the annual loss [1] to retailers in the U.S. at $42 billion. And retailers aren’t the only businesses affected. Employee theft occurs in all types of companies. You can, of course, reduce your exposure by implementing loss prevention practices (e.g., employee training).

Nonetheless, you won’t be able to eliminate it entirely. Some employees will steal no matter what and it will drain money from your company.

2. Employee Turnover

A stable workforce is a money saver. When employees leave and you have to replace them, you face the cost of:

3. Payroll Taxes and Benefits

When you hire an employee, the wage paid to the worker is only a part of the overall cost of employment.

According to an MIT lecturer [2], the overall cost can run from 1.25 to 1.4 times the basic pay (e.g., a $40,000 salary costs a business between $50,000 and $56,000; a $100,000 salary between $125,000 and $140,000). Additional costs include:

4. Legal Fees

You never know what’s going to happen. Small businesses are the biggest victims of frivolous lawsuits, according to the NFIB [3]. Bogus and legitimate lawsuits cost small business owners in many ways:

5. Repairs and Replacements

Things break, and if you still need the equipment, you’ll have to repair or replace them. The cost of repairs can be pricey, with sole proprietors (Schedule C filers) paying more than $16.7 billion in 2012 [4]. Annual maintenance costs to keep equipment in good running condition should be an ongoing expense to avoid the higher costs of repairs or buying new equipment to replace the old.

Final Thoughts

These aren’t the only hidden costs to consider. If time is money, as the adage says, then how you spend your time can be a big hidden cost for your business. Open your eyes to costs you may face so you can budget for them and be ready.

Hiding [5] Photo via Shutterstock