1. EXPENSIVE LOANS
Most entrepreneurs need some sort of loan to finance a startup. This often comes in the form of a small business loan from a bank or other traditional lender. And if you don’t have any business experience or an established company with the right tax and revenue documents, that loan is most likely going to be based on your own personal situation. Thus, if you have a bad credit score, you’re going to get some pretty bad terms on the loan (if you get approved at all).
Unfortunately, this often starts a cycle. You get bad terms because of your bad credit. Which in turn means you spend thousands more in interest payments over the course of the loan. And because you’re spending more in interest, you’re less likely to be able to make payments on time. This drags your credit score down further, which costs you even more in the future.
You need to be aware of the hidden cost that is loan interest. Fixing credit on the front end will save you a lot of money in the years to come.
Read more: Why you need a saving buffer
2. Insurance
When you first start out, you might not need a lot of insurance. However, as time goes on, the need for various insurance policies increases. These include things like home business insurance, liability insurance, legal expenses insurance and cyber insurance.
How much you spend on a given policy is based on numerous factors, including the type of business, size of the business, industry, location, revenue, previous issues, present risk factors, and number of employees. You can easily spend $1,000 or more per policy per year. For a business that’s already operating on a tight budget, these hidden costs can make it difficult to stay on track.
At Imalia we develop our policies to suit your needs. Our Home Business Insurance provides a one stop-shop property solution for people that operate a business from the home they live in. By completing our Home Business Cover Proposal Form, you provide us with the information we need to work with the insurer to be able to provide you with a policy that is the most cost effective for you.
Read more: Home Business Cover
3. Legal Fees
You probably don’t go into business thinking you’re going to generate a bunch of legal fees. That doesn’t mean they don’t exist. In some cases, legal fees might be the number one hidden cost.
“Small businesses are the target of many frivolous lawsuits because trial lawyers understand that a small business owner is more likely than a large corporation to settle a case rather than litigate,” NFIB explains. “Often small business settlements are less than $5,000, but even $1,000 settlements are significant for businesses.”
And even if you settle a suit, you can expect to see insurance premiums rise as a result. This drives up costs even further.
Read more: Starting a business? Did you forget insurance?
4. Taxes
Coming from a career where you were an employee, you probably didn’t think much about taxes. Sure, you paid your fair share of taxes, but it was largely automated by the payroll department. Your company probably covered part of your bill. Unfortunately, things are different as a self-employed business owner.
Even if you aren’t generating a ton of money for yourself, you’re still going to owe Uncle Sam something. And because you’re on your own, self-employment tax becomes a real thing. Be sure you take this into account.
Read more: 7 tips for surviving the leap from employee to entrepreneur
5. Fees and Permits
Depending on what industry you operate in and what products you sell, you might need various fees and permits to be considered legal. Many entrepreneurs don’t realise this and find themselves spending thousands on something they didn’t know about.
The classic example is the alcohol permit for businesses that sell and/or serve alcohol. When Mark Aselstine and Matt Krause started a wine club company in California, they found the process of getting permits to be very expensive. Between all of the permits, Aselstine estimates that he and his business partner spent close to $15,000 in their first year of business.
Read more: 5 ways to prepare your finances when starting a business
6. Administrative Costs
Finally, administrative costs will sneak up on you if you aren’t prepared. This includes all of the things you previously took for granted when you worked for someone else, such as: Utilities, computers, phones, printers, filing cabinets, paper clips, office cleaning supplies, software. Individually, these items might not cost that much. They only add up to thousands of dollars over the course of a year. Do yourself a favor and account for them when you prepare your budget.Read more: How to finance your career change
Can You Handle the Cost of Business?
There’s an old saying that says, It takes money to make money. In other words, you need money in order to make more of it. As motivating as it might be to claim that you only need a good idea and lots of ambition, the reality is that very few entrepreneurs make it anywhere without:
1. Having money
2. Using that money wisely
As with anything, there are exceptions, but this is the general rule of thumb.
Whether you’re planning on starting a business, recently launched a company, or are in the growth stage of building a brand, you have to be aware of just how important money is in the equation. Specifically, you must be aware of the hidden costs.
If you are inspired and would like to join the revolutionary movement that Imalia is creating, you can request to join our Facebook group The Wolfpack, to share ideas and learn from other like-minded women.
This is an edited version of a story that first appeared on Due.