5 of the most-underestimated hidden costs when you run a small business

Sales, marketing, finance, client development — you will have to dabble in it all on any given day and do a proficient job at it. On top of that pile of stress, you will probably be doing it all on a limited budget.

Certainly, managing the business’ finances is the single most-important task for owners. Controlling the budget and not running a deficit requires careful planning, farsightedness and accounting for any and all eventualities. But finances are the aspect of a small business’ operations that are the most apt to be mismanaged by their own owners, which can eventually lead to an untimely closure.

Five of the costs most commonly cited as underestimated among small business owners are outlined below.

Cost estimating / knowing what is needed

Many new business owners fail to realistically estimate the costs involved with getting their business off the ground. Initially, the business can’t be expected to get revenue right from the get-go. But there will be many costs accrued from day one.

This means business owners must forecast how and what they will spend in the months to come. For example, there may be registration fees, licensing fees and regulatory fees, and these may be a one-time expense or a recurring one. Poor cost estimating can sound the death knell for an already fledgling endeavor.

Similarly, knowing what you need to get the business off the ground is an analysis that every owner must tackle. The trick is to start small and then grow in stages. Doing so protects your investment and limits the exposure that your budget or resource might have to the “actual” world.

If you can function out of your home and skip the lease, that is like putting money in the bank. If you can do some work and skip on an employee’s wages, it is even better. Smart proprietors trim redundant salaries and arrange a cost-effective outsourced alternative.

Identifying the types of costs

Building awareness of the different types of expenses that your business will encounter helps you win the battle halfway through. Not all costs are the same: some are one-time, and some are ongoing; some are required but others can be skipped.

Costs such as rent are fixed. But there will be variable charges to plan for as well, such as-payment processing services. Depending on the payment method, you should expect to pay anywhere from 1% to 3% per transaction. This fee may be steeper for higher-risk payments. For an established business this may be fine, but it could be a blow for a new one.

Among the most-common costs involved with launching a new business are website development, office rental, office equipment including furniture and electronics, labor, supplies, permits, branding, and advertisement and marketing.

Cash flow and delayed payments

Although it is not strictly a cost-related issue, cash flow is intrinsically connected. Predicting and then realizing cash flow is one of the vital areas where a business must succeed.

Making sure that your cash from services rendered is flowing and negates the costs that have been accrued beforehand is part of cash flow. If you must borrow to pay costs, keep tabs on the interest rate, the amount borrowed or the money that you require. Make sure any cash flowing into the business is accounted for and not being paid to satisfy a cost that could have been skipped.

You will need to expend effort to ensure customers’ payments are remitted on time. Giving leeway to customers may be a great way to further your business, but realizing the service provided is extremely important. Your recurring costs will still accrue. Late payments will end up as interest you pay to third parties from which you have sourced funding in lieu of a timely payment. To make sure your finances are in order, outsourcing can be an answer.

The office

Not every business needs an office. Establishing one takes up a sizable chunk of your resources, energy and time. Not to mention the costs, and it'll be borne by you from day one. Work smart by investing in a shared work space, or work from your home. During the “new normal,” working remotely and getting support staff online saves many businesses money. Hire freelancers and look for good deals. Anything that can save you a buck will in turn earn you one.

Brand marketing and advertising

If you are starting lean, you might not be considering marketing and advertising costs at all. But if your brand doesn’t have a presence, you need to get the word out. You may opt for business-to-business marketing, or business-to-consumer marketing or both.

There are numerous formats to build awareness, like paid TV print, radio and internet ads and outdoor, social media, email marketing, sponsorships, promotions, influencer and loyalty programs, to name a few. Your marketing and advertising budget will depend on the business type, product category or commodity you deal with, as well as your particular marketing strategy. Keep in mind that hiring a professional for marketing and advertising campaigns will entail an additional cost.