The Hidden Costs Involved in Running a Business

By November 21, 2018

It hardly needs to be mentioned that running a business is neither easy nor cheap. Besides the expenses one probably is aware of, there are a number of hidden costs incurred in running a business. The following are some of these:

  • Expensive loans

Most entrepreneurs need some sort of loan to finance a start-up which often, comes in the form of a small business loan from a financial institution. If you don’t have any business experience or an established company with the right tax and revenue documents then the loan will be based on your own financials. Thus, if you have a bad credit score, you may have a tough time in getting the loan approved once you apply for the same.

  • Employee benefits and perks

It does not suffice to calculate what you pay employees in terms of salary; you also need to account for taxes, benefits and perks. According to a study conducted by Joseph G. Hadzima Jr. of the MIT Sloan School of Management, the overall cost can run from 1.25 to 1.4 times of the basic pay. This increase can be attributed to factors like employment taxes, workers’ compensation and fringe benefits (healthcare, retirement, vacations etc.)

  • Shrinkage

This is especially applicable for companies that sell physical products. Shrinkage can result from any number of causes and this is not just reserved for retailers. Examples include shoplifting, employee theft, paperwork errors and vendor fraud. It is nearly impossible to avoid shrinkage altogether but one should make attempts to mitigate it enough so that it doesn’t negatively impact your company’s bottom-line.

  • Insurance

When you first start out, you may not need a lot of insurance. However, eventually, the need for various insurance policies increases including general small business insurance, liability insurance, errors and omission insurance, workers’ compensation insurance, property insurance and cyber insurance. The amount you spend on a given policy is based on numerous factors including the type and size of business, industry, location, revenue, previous issues, present risk factors and number of employees. For a business that is already operating on a tight budget, these hidden costs can take a toll on the same.  

  • Legal fees

Often it so happens that small firms are targeted by many frivolous lawsuits as trial lawyers understand that a small business owner is more likely than a large corporation to settle a case rather than litigate. And even if you settle a suit, usually it leads to a rise in insurance premiums, which drives up costs even further.

  • Taxes

As a self-employed business owner, even if you fail to generate a handsome profit for yourself, you will still need to pay taxes.

  • Fees and permits

In order to be considered legal, you might need to pay various fees and permits, depending on the industry you operate in and the products you sell.

  • Administrative costs

These can catch you off-guard if you are not prepared. Mostly, it includes things that you had overlooked when you worked for someone else, such as utilities, computers, phones, printers, office cleaning supplies, filing cabinets, software and so on.

In case you are in need of MSME or SME loans at low business loan interest rates, look no further than Bajaj Finserv. This NBFC lets you avail loan amounts of up to Rs. 30 lakh, by submitting only 2 documents. The best part is that this loan is processed in just 24 hours.

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