For the first-time business owner, your ability to control costs is a critical success factor. But have you factored in these often-overlooked costs of running a business?
What could be more cost-effective than starting your own small business from home?
No mandatory commute means money saved. No managers or investors to keep most of the profit for themselves and no (additional) rental overheads.
For many, it sounds like the perfect antidote to a busy, expensive lifestyle. But is it?
Truth is, running a business carries various costs that are easy to overlook, even if you’re operating it out of your parents’ garage. And if you don’t prepare for all eventualities, you can find your dream business has become a financial nightmare.
To help you get prepared for running your own startup, here are five hidden costs of running a business from home.
The irony is many entrepreneurs begin working for themselves to better value their time, but most of them completely fail to do so.
Instead, they fall into the habit of trying to do everything themselves, assuming their effort is innately productive – but that isn’t the case.
Part of the reason for this is that it’s possible to value your time in an abstract sense (recognising that you have useful skills) without monetarily valuing it.
As a business owner, you need to understand what every hour of your time is worth and use that as a yardstick to figure out what you should (and shouldn’t) be spending your time doing.
The dream of flying solo isn’t sustainable if you have any ambition to scale your offering.
There’s only so much a person can accomplish in a day, no matter how skilled or dedicated they are. Sooner or later you need to start building a team.
Why is this a hidden cost? Because however inevitable it may be, it’s all too easy to ‘kick the can down the road’ and treat it as something that might happen one day but isn’t an immediate priority.
But, if you know you’ll need employees worth investing in some day, you need the funds to offer competitive salaries, and that requires preparation and saving.
Without the advent of software-as-a-service (SaaS), or cloud-based software, it wouldn’t be possible for a lone entrepreneur to build a scalable online business.
From your word processor to your website, if it’s digital then it can be delivered over the internet for a relatively low monthly rate.
One obvious example of a business-critical solution is your online accounting software. Incorporating this type of software early on makes it easier to get paid faster with automated invoices, capture your receipts and prepare cash flow forecasts.
Many new business starters figure they can do all this manually, but your time is valuable, and much better spent on other things. Furthermore, the introduction of Single Touch Payroll in Australia and Payday Filing in New Zealand means that, if you intend to employ staff, you will need to acquire this kind of software to report salaries and super with each pay run.
There can be also be hidden costs in choosing between SaaS utilities. What you think is the best deal might work out as more expensive in the long run. I follow e-commerce closely, and both Shopify and BigCommerce are great website hosting solutions, with the latter being nominally cheaper – but the former’s native multichannel selling, automation options and higher growth rate may justify the higher and ultimately make it cheaper as your business scales.
Ultimately, the right software solution for your business will come down to your individual circumstances, so be sure to consider your options carefully.
These costs can really take people by surprise, because many people don’t know they exist.
Industry memberships are sometimes mandatory, but more often simply recommended, and involve businesses joining governing bodies (of sorts) that oversee their industries – whether regionally or internationally. The ACCC lists a number of these industry associations on its website, while New Zealand also have an array of industry and trade associations.
For instance, if you ran a decorating business, you may need to join a regulatory body tasked with making sure all decorators are working safely and correctly (depending on the country). And even if you require no such membership at the moment, are you certain that you won’t pivot your business down the line?
When you start running your business, you’re riding on a wave of optimism. Finally, everything’s going to go your way. You’ll make the money you were previously denied, have the freedom you always craved, and be able to truly express yourself – but things won’t always go your way, and unless you want to hit a bump in the road and crash, you need business insurance.
Depending on the type, breadth and level of insurance you go for, this can be a modest cost or a massive one. Either way, it’s not something that any business owner should ignore.
The long-term survival of your fledgling business is more important than your early profit levels, so take it seriously, shop around to find the best insurance deal, and get your operation covered.
These costs can sneak up on you if you’re not careful, so pay close attention. Running your own business can be hugely rewarding, but it will turn into a negative experience if you hit financial troubles.
Reproduced with the permission of MYOB. This article by Kayleigh Alexandra was originally published at https://www.myob.com/au/blog/hidden-costs-running-business/
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