Did you know that the number one reason small businesses fail (82 percent) is because of cash flow problems? (Source: Business Insider). If you’re a first-time business owner, you’re learning the ropes as you go. That means you’re still figuring out what business costs fall onto your lap and how to mitigate unnecessary expenses. If you don’t figure that out soon enough, you could end up on the same path as so many small businesses before you.
Instead of letting unforseen costs throw a wrench in your progress, start thinking about the business costs you haven’t planned for. With an accurate financial projection, you can better manage cash flow and watch your small business grow into a thriving organization.
4 Business Costs to Plan For
Here are four business costs that you should keep up front and center when handling your budget and business plan.
Ecommerce Order Fulfillment
If you run an ecommerce business, you may still be storing all your products at home—in the garage, the spare bedroom, the downstairs closet, or wherever you can find space. At some point however, as your business scales, you’ll need to consider using fulfillment services.
According to BigCommerce, ecommerce order fulfillment is the process of storing inventory, picking and packing products, and shipping orders to customers. Right now, you’re likely using the self-fulfillment process, which means you take care of every step from your home or office, which is likely time-consuming.
You may need to consider the costs of third party fulfillment (3PL) as your business grows and you’re no longer able to feasibly handle this process. As shipping costs increase with customer demand, you may struggle to keep shipping fees low and customers happy.
Costs for fulfillment services range depending on receiving, storing, picking, packing, and shipping costs. FitSmallBusiness compares a few popular service options to give you an idea. While it may seem appealing to simply purchase space in a warehouse, remember that you still need to manage that space—or hire employees to do so. A fulfillment service will take all that work off your plate and help you keep costs (like shipping) low.
Collaboration is critical to your business success—so much so, that companies that promote collaboration are five times as likely to be high performing, as reported by Entrepreneur.
“[Employees] have different sets of skills, different levels of creativity, different values, and different ideas. Collaboration inside the team means putting all of those differences together to solve problems and drive innovation. In order to take advantage of the best everyone has to offer, we need to have them collaborate efficiently.”
This is where technology—and unforeseen costs—comes into play. Tools like messenger apps or chat programs facilitate collaboration between different employees all working toward the same goal. Carstoiu explains:
“Technology is providing some very important tools that facilitate collaboration. It allows people to communicate, share ideas, documents, or any other kind of data in a matter of seconds … By increasing work productivity and relieving frustration caused by constant interruptions, technology enables efficient communication, which ultimately is collaboration.”
This technology can come in many forms, depending on your needs. For example, you may want to facilitate company-wide collaboration with a chat tool and encourage specific teams to work better on projects with project management software. Consider what your business needs and be ready to make the financial investment.
Employee Professional Development
Did you know that 56 percent of employees feel they have no career advancement opportunities at their job? According to OfficeVibe’s State of Employee Engagement, that’s not all—53 percent say they haven’t improved their skills significantly in the last year.
Yet, LinkedIn’s 2018 Workplace Learning Report found that 94 percent of employees would stay at a job longer if the company invested in their growth—but what’s the cost? Providing these opportunities to your employees requires three things: planning, resources, and facilitation from team leaders and the HR department. All of that takes time, which means it costs money.
As you assess your budget, remember that you can provide professional development in many ways, from inexpensive to pricey. A few options include:
● Internal mentoring program
● Annual conference passes for the conference of their choice
● Self-paced online learning
● In-office learning from an instructor
● Peer-to-peer learning with lunch and learns
Don’t forget about the returns on this learning investment, though. For example, technology-based businesses may need to put money into training their developers, who need to keep up with advances in security and product development. In this case, the 2018 Developer Learning Survey found that the “minimal learning investment of $800 to $1,800 per engineer per year delivers significant returns—as much as 20 to 30 percent—in employee morale and productivity gains.”
Contractors and Consultants
When you started your business, you were doing everything on your own. If you’ve grown, you may have even hired employees, either full-time or part-time. However, don’t overlook the costs associated with bringing in consultants or contractors. These people provide specialized or project-based knowledge—and in most cases, they aren’t cheap.
Take the example of a Certified Public Accountant (CPA). Considering 40 percent of small business owners say bookkeeping and taxes are the worst part of running a business, according to Score.org, chances are high that you’ll be working with one at some point soon too. While costs differ depending on your needs and who you work with, Score shares that small businesses report paying the following when working with a CPA:
● 23% of small business owners spend $1,000 or less
● 31% Spend $1,000 to $5,000
● 18% Spend $5,000 to $10,000
● 12% Spend $10,000 to $20,000
● 16% Spend $20,000 or more
If you’re not a financial aficionado, leave room for this in your budget. Without financial guidance, you risk expensive penalties that will end up costing a lot more than the fees to work with someone at the start.
As your business grows, you’ll likely work with a wide range of consultants and contractors, from IT security experts to marketing consultants. Build those costs into your business plan now.
Start Planning for Future Business Costs Now
As your business grows, so too will your costs to operate it. Don’t wait to assess the costs associated with your business’s needs until you’re in scramble mode. Instead, build those costs into your projections now. This allows you to better manage your cash flow and grow into a booming small business.