Starting a business is a bit like moving into a new house – you are usually well prepared for the obvious expenses, but the hidden extras can break the bank. During the start-up phase of a small business, the business owner needs funds for once-off costs as well as at least six months of working capital. You need to plan for things to cost more than you think, and include this budget in your business plan. If you are not sure what your expenses will be, make finding out part of your due diligence. You can research similar businesses in your industry and aim to uncover any general expenses that you might not have thought of. If possible, consult an accountant who has small business experience.
Typical start-up costs include:
- Expenses before the starting date, such as market research, registration fees, legal fees, office stationery, design and printing of corporate identity (business cards and letterheads), registration of a domain name and creation of a website, installations and utility connections (if moving into a new property)
- Start-up inventory (if yours is a product-based business)
- Long-term or fixed assets, such as property and equipment.
- Cash reserve to support the company during the early months, before sales reach break-even levels
- Assets, such as fixtures and signage, office furniture and vehicles (either purchase price or down payments)
Your start-up budget should also allow for initial monthly operating expenses, such as:
- Rent, home loan payments and loan repayments
- Website hosting and equipment leases
- Salaries and wages
- Ongoing advertising and marketing
- Levies, utilities and rental payments
- Office supplies and consumables
- Telephone, mobile phone and communication cost
Beware of the hidden costs!!!
Hidden costs are those you don’t see, don’t always expect and which seldom feature in a business plan. These costs vary, depending on the size and nature of your business, and can include:
- Monthly interest on your business overdraft (R100,000 at 11% costs you R934 every month)
- Bank interest charged by suppliers when you pay them late
- Interest lost when customers pay you late, or when you pay a third-party supplier before you have been paid by your own client for a product or service
- Maintenance, e.g. IT support and vehicle services
- Money lost by spending time on tasks that could be outsourced
- Employee turnover; this is one of the most substantial hidden costs in business today. Remember that an employee costs more than his or her salary. Factor in the cost of additional equipment, office furniture, perks, recruitment and training
You can’t always avoid these costs but being aware of them helps you to minimise their impact and plan for them in your budget.