7 Most Unexpected Costs of Running a Business
Running a business is not rocket science, but it does come with its share of challenges and financial burdens. It does not mean that you ought to be a billionaire to set up an enterprise. There are many examples of success stories which had a humble beginning like Steve Job’s Apple which was launched in his parent’s garage, Amazon that began as an online bookstore being operated by Jeff Bezos from his garage, and Dell which was launched by Michael Dell from his dorm room in the University of Austin. The formula for success is maintaining a steady cash flow without letting the costs spiral out of your hands. If the capital is not managed with skill, it can prove to be fatal for the health of the company. In fact, lack of money is the primary reason for businesses to shut shop after a few years of operation. That is why budding entrepreneurs now want to buy a business in South Africa which has a proven track record and has never faced financial difficulty. Though the terms of business expenditure in South Africa are laid down pretty transparently by the government, many hidden costs can jeopardise the success of the business.
From British American Tobacco to Naspers, all leading South African companies have made it to the top through appropriate management of funds. Though we all know about the regular costs incurred through property lease, registration, contracts, utilities, transport, and more, the hidden costs are not addressed openly. So if you have been thinking about setting up a business, you must take note of these hard to notice expenses that can make your budget go haywire. Here are the top seven most unexpected costs of running a new venture.
1. Human Resource Costs
The first-time business owner might be under the impression that an employee would only cost as much as his/her salary. However, this is far from the truth. An employee incurs 25-30% more expenditure over and above the amount mentioned in his/her payslip. These hidden costs include parking space fee, training and development charge, paid leaves, perks, tea-coffee, and entertainment expenses. If you are hiring through a consultancy, then include the recruitment cost and the expenditure of interview rounds and initial training sessions in your budget as well.
2. Outsourcing Expenses
As the business grows more employees are hired, and customers begin to pour in. It generates the need for more profound corporate functions like administration, human resource management, marketing, advertising, social media, legal counselling and more. A start-up does not have the budget to set up these departments in-house and hires teams for them. In most cases, these jobs are outsourced to freelancers or low-cost third-party service providers who are hired on a contractual basis. Though they may not charge as much as full-time employees, a significant amount of the budget needs to be allotted for these services. Professional consultants and accountants can demand a high fee for their service, so make sure you do not miss out on including this component in your cost estimation.
3. Maintenance of the Property
Whether you have bought the office complex or got it on a lease, the maintenance of the property is your responsibility. Also, the outward appearance of the premises plays a vital role in attracting clients, stakeholders and partnerships, so it must not consist of a leaking roof or mould infested walls. Besides the property, you will have to keep some money aside for unforeseen maintenance issues with the machinery or the computers which can bring the work to a standstill. Keep the weather conditions in mind while buying a property to avoid damage due to natural disasters. It is better to spend on servicing of the property than spending on purchase of a new office space or equipment.
You may take every precaution in the book, but certain things are beyond your control. In business too, some aspects are inevitable including shrinkage which means loss of inventory. It can happen due to many reasons such as theft, spoilage, damage during transportation, a customer receiving more than his/her order and more. It usually occurs during the supply-chain procedure and is the primary cause of increased budget for many businesses, especially retailers who face huge losses due to shrinkage.
In the beginning insurance may not seem like a significant expenditure, but with the growth of the company, the cost will keep increasing. For example, you can start with just the employer and public liability coverage, but sooner or later you will need a plethora of others including property insurance, vehicle insurance, business interruption insurance, illness and injury cover. You will find yourself writing cheques with bigger amounts with each passing year. Thus find the best cover for your business needs and invest accordingly.
6. Delay in Payments
At times, the clients may not be regular with the monthly payments or may make a delayed payment. Thus you would not be able to pay your bills on time as the payment would not be processed. Also, your own company could lag behind in paying loan premiums and become defaulters which can lead to legal problems. Make sure to send out the invoices on time and retrieve all payments by the month end to make your ends meet.
A massive tax or VAT bill can make you distraught. To avoid spending a significant chunk of your income in taxes, take help from consultants and professionals who will show you the way to curtail this expense to a minimum. The only thing to be done by the owner is to follow the SARS regulations and get registered with UIF and pay the union fee. It will ensure that you are working within the framework of government regulations and are paying all your dues.
These are just some of the typical hidden costs that may be incurred by a business owner. However, there can be many more, such as too much time spent in completing a task or upgrading software and equipment. So think wisely and buy a business in South Africa rather than starting something from scratch. An established company will have a budget allotted for all the running costs and would be making a substantial return on investment.