Most small business owners are fully aware of the standard business costs like office rent, marketing, payroll, etc but it is the hidden or unexpected costs that hit hardest. It’s about time you stopped playing hide and seek with these costs and got your cost- control game on. Here’s what you need to be on the guard for:
Your time is valuable and so spending too much of it on tasks that don’t generate revenue is a dangerous but certainly avoidable hidden cost of running a business. Make a comprehensive list of all the things you need to do. Then, prioritize the list to see which tasks you should devote the most time to.
Payment delays aren’t a direct monetary expense but, they do cost you. Cash flow depends on customers sending timely payments. As long as customers are slow to pay, your business loses money. Avoid late payments by fine-tuning your invoice payment terms and conditions and following up with late-paying customers. However, do not assume all your collection efforts will lead to on-time payments. Give yourself a little cash cushion to manage payment delays.
The more your consumers demand from your business, the more your business demands from you. At some point, you might need extra hands helping you with daily operations. However, a competent workforce can be costly. Employee expenses include taxes, training costs in addition to regular wages. If you are not trained on the hiring process steps, you could end up losing a lot of time and money before you even add an employee to your payroll.
Employee Benefits and Perks
Calculating what you’ll pay an employee in terms of net salary is not enough. If you don’t account for taxes, benefits, and perks, you’ll quickly find yourself in a ditch.
According to research from Joseph G. Hadzima Jr. of the MIT Sloan School of Management, the overall cost can run from 1.25 to 1.4 times the basic pay. The increase is due to things like PAYE and fringe benefits (healthcare, pension contributions, paid leave, etc.). Using Hadzima’s multiplier factor, an annual salary of GHS 9,600 could cost as much as GHS 13,440. Now when you do the math for multiple employees, the variance between what you actually pay versus what you expected to pay could be enough to run your business into the ground.
Most young businesses need some sort of loan to finance their operations. This often comes in the form of a business loan from a bank or other institutional lender. The cost of getting this support is interest and the lower they are the better for your business.
Finally, administrative costs will sneak up on you if you are not prepared. This includes all of the commonplace things you took for granted when you worked for someone else; utilities, phones, office cleaning supplies, software and others. Make sure to have an eye out for such costs.
For businesses that sell physical products, there is always the risk of shrinkage. Shrinkage can result from numerous causes and it does not only affect retailers. Examples include employee theft, paperwork errors, and vendor fraud.
Knowing that shrinkage could be an issue, you need to be proactive and prevent many of the factors that cause it. We still have not figured out how to avoid shrinkage altogether, but you should be able to mitigate it enough that it does not negatively impact your company’s bottom line.
Now go forth and be the master of this game of costs!