Starting a new business is a very exciting time for any new entrepreneur. However, with 50% of start-ups not surviving their first 5 years, it is imperative that you know the costs before you get started. To ensure you do not miss anything, here are the top 10 hidden costs you need to be aware of before you begin trading:
1. Licences & Memberships – Due to the nature of some business operations, you may need an industry-specific licence which is maintained through an annual membership. For example, before Chiropractors can begin a business, they must be licenced and maintain a membership with the Chiropractic Board Australia. You may also find that your local council has certain licencing requirements for your area.
2. Insurance – While you may have already thought of the typical insurances such as stock, equipment and property protection, there are other insurances that must be implemented when running a business. These include Public Liability Insurance and, depending on your industry, Professional Indemnity Insurance. It is best to chat with an Insurance Broker to determine the best policies for your circumstances.
3. Software Subscriptions – What software do you need to operate your business and accept payments from your customers and clients? What about the software needed for your book-keeping and tax requirements? Those costs are often overlooked during the initial set-up phase of a business.
4. Equipment Maintenance – No one wants to think of this, especially during the start-up phase, but equipment must be maintained to remain in business. Make sure to budget for regular equipment maintenance even in the early phases.
5. Employee Expenses – Hiring your first employee is more than just handing them their wages for the day. Hidden employee expenses include Superannuation, Holiday Pay, Training and Insurance.
6. Shrinkage – Is the term given to stock lost between ordering and sale. This can include damages, expired goods, markdowns or theft. Good workplace practices can minimise shrinkage through regular stock rotations, safe work practices and security cameras.
7. Professional Services – Professional Service costs in the first year of business are usually high, due to the need to ensure legal necessities in place before operation. Some of these expenses could include Accounting, Book-keeping, Insurance Brokerage, Business Name Registration and Solicitor Fees (for example, for contracts and to secure your Intellectual Property).
8. Government Taxes – With the right accounting system set-up, you can turn this hidden cost into a very visible one as you begin to turn a profit. Speak to your accountant about the best software/method for your business so you know exactly how much Income Tax, GST and PAYGW is required as you trade.
9. Payment Delays – What will happen if your clients cannot make payments on time? Has this been factored into your expenses for the year?
10. Your Time – You have probably started your business to give yourself the time and freedom you did not have working for somebody else. But if you are not careful, it can become quite easy to lose sight of how valuable your time is. Work out how much your time is worth BEFORE you start trading and then pay yourself accordingly.
With these hidden costs now brought into your awareness, take the time to budget them into your cashflow before you begin trading to avoid any nasty surprises later. And more information on starting a business, be sure to check out the information on the Australian Government’s Starting a New Business Guide.