6 Hidden Costs You Need To Monitor While Running A Startup


Starting your own business is a dream come true for every entrepreneur. However, cash flow is the lifeline of every business and unless you have enough money to run your business, your dream can quickly turn into a nightmare.

 

Most first-time entrepreneurs make the mistake of focusing too much on growth, while neglecting the cost of running their business. As a result, many hidden costs crop up and snowball into large expenses, eat into your profits, and eventually bring down your company.

 

In fact, we were able to turn our business around and break even by simply being more prudent about our business expenses. So it’s always important to keep an eye on the hidden costs of running your business, to stay in the game longer.

 

Here are 6 hidden costs that can hurt your startup if you don’t monitor them regularly.

 

Office Space & Utilities

It’s great to have a beautiful office that provides an amazing work environment, boosts productivity and helps build your brand. But do you need it right now?

 

Think about how much office space you need, and how many people you will employ to begin with. If you’re running an online business with just a couple of employees, then a home office should do just fine. You can always move into a more plush workplace when your startup takes off.

 

Sometimes, depending on the nature of your startup, zoning & other regulations might require you to work from a more official location. In that case, determine if you need a private office space or a coworking place would do.

 

Coworking spaces are shared working environments with all the features of a full-fledged office – like phone, internet, meeting rooms, etc. You can rent individual workspaces for employees, instead of paying for the entire office space. They also provide a good opportunity to network with other entrepreneurs, freelancers and startups who also work there.

 

In any case, it’s not at all recommended to buy a property, when you launch your business. If things don’t work out as you expect, you’ll have to sell/rent it, which will only worsen your problems.

 

Equipments, Maintenance & upgrades

There’s no doubt you need to provide the right tools to your employees so they can produce their best work. But it can be easy to ignore their underlying costs.

 

Make a list of all the office equipments you need to run your business – computers, scanners, printers, desks & chairs – and budget their costs to ensure you know how much you need to invest initially.

 

Don’t rush to buy the latest models, if you don’t need them. You can buy second-hand items from sites like Ebay & Overstock and use the savings for more important stuff. It’s essential to question the need for each office equipment to avoid overspending. Do all your employees need laptops? Do you really need a new phone to run your business? Or is your present one good enough? In most cases, a cell phone that allows you to call, text, email, and browse the net, are more than enough to run your startup.

 

Also, find out how much it costs to maintain your equipments. Most computer equipments have a lifespan of 4-5 years, and if you don’t maintain them regularly, it can reduce their lifespan by more than 50%.

 

Employees & Benefits

Employees are the greatest asset for every business, and if you don’t treat them well, they’ll leave. In fact, did you know that when a person leaves, it costs 1/5th of his salary to find a new employee?

 

So it’s important to factor in the costs of salaries, training, employee leaves & insurance, while budgeting your expenses. You’ll also need to account for ad-hoc expenses such as team lunches & outings, a new foosball table, a coffee maker, etc. It can’t be all work and no play.

 

One of the most effective ways to improve employee retention, without spending a lot, is to offer perks – benefits like flexible work timings, casual dress code, and telecommuting create a favorable working environment that persuades employees to stick around longer.

 

Insurance

This is one of the most important, yet neglected, cost of running a startup. At the minimum, you need to insure your startup against employer liability & public liability. You can also consider taking insurance for property, negligence and injury.

 

If you have a good track record, then you should definitely negotiate with your insurance providers. They’ll offer heavy discounts just to keep your business. Also, evaluate your insurance policies once a year to see if they still fit your business’ requirements. Otherwise, you can speak to your provider, as well as other insurance companies to get the best deal possible.

 

Technology costs

Most startups are tech-enabled, one way or the other. They have a website (may be even a mobile app) and use several automation tools to get their work done. However, technology has become so seamless that you may be oblivious to how it’s adding cost to your business.

 

Make a list of all the costs incurred in running your website, including the price of your domain, hosting service provider, ssl certificates and support service. You’ll see that most of them are recurring expenses that you need to pay every month/year. As such, they can quickly increase your operational costs and lower your profits.

 

Similarly, add up the costs due to each paid software used by your startup team – from collaboration tools like slack, to email marketing platforms like MailChimp to even your laptops’ operating systems. Find out if they have any good open source alternatives. Can you replace Windows with Ubuntu? Are there open source alternatives for Slack? Can you find a cheaper hosting service provider?

 

Also, if you receive online payments via third-party payment providers like PayPal, or BrainTree, then check out their transaction fees, and try to replace them with an inexpensive option.

 

In fact, we were able to lower our technology expenses by 32% by simply changing our hosting service provider, and replacing many of the paid software, with their open-source alternatives.

 

Professional Services

It’s always advisable to hire the professional services of legal and accounting firms. Although their fees can run into thousands of dollars every year, they can help you save a lot more in the long run. Legal professionals can help you navigate through red tape, as well as defend you from lawsuits. Accounting experts can help your startup be compliant to tax regulations, as well as discover tax benefits.

 

Don’t be afraid to approach them, or negotiate with them. We’ve found that many of these firms have discounted rates for startups and small businesses. In fact, some of them even offer pro bono consulting on weekends. All you need to do is ask.

 

Financial prudence can go a long way in helping your business last longer and turn more profits, faster .

 

What other hidden costs have you incurred while running your startup?

About Sreeram Sreenivasan

Sreeram Sreenivasan has worked with various Fortune 500 Companies in areas of Business Growth, Sales & Marketing Strategy. He’s the Founder of Ubiq BI, a cloud-based BI Platform for SMBs & Enterprises.