The past two years have been challenging. In fact, 35% of small business owners are considering closing their businesses.
Unexpected business costs caused by the pandemic and rising inflation have crippled many. Odds are, you, too, have felt the impact of these situations. Maybe not to the point of shutting down, but to the point of thinking about it.
Is shutting down or giving up your only option? The simple answer to this question is no. Not when you can take measures to prepare for the unexpected business costs.
Wondering how? Read on as we give you top tips that’ll help you remain afloat despite rising business costs.
1. Research Business Costs
Many of us go into business having underestimated the actual costs of business.
Sure, you know you’re supposed to plan for equipment, salaries, and employee benefits. But these aren’t the only expenses you’ll encounter as you run your business. Here are other costs in business you need to know:
• Equipment failure costs
• Insurance costs
• Supplier increase costs
• Technological expenses
• Product development/ expansion costs
• Inventory loss expenses
• Payment delays
• Equipment maintenance costs
Depending on your type of business, you could encounter more than just these costs. So, talk to other entrepreneurs in the same field as you. Ask them about their unexpected business costs so you can start preparing for them.
2. Have an Emergency Fund
The temptation to go all out when times are good will be there. You’ll want to upgrade your office supplies, give your employees a bonus, or even expand.
While all these are excellent ways to spend your income, don’t overdo them. Budgeting in business will save you a lot of trouble, so take some time to plan. Focus on one critical development at a time when times are good, and save the rest of your income.
You’ll need the extra money when rainy days hit. The money you’d have spent on an unplanned expansion can save you in emergencies.
First, focus on stabilizing your business before taking resource-intensive actions. Keeping an emergency fund will go a long way in helping you do so. Remember, it’s better to stagnate than grow too fast and crash.
3. Keep an Eye on Your Money
Did you know that 82% of small businesses fail because of poor cash management? How you use your finances will determine how ready you are when tough times hit.
Do you focus too much on your equipment, marketing, or staffing? Financial management is vital in cutting costs and ultimately keeping you in business.
You don’t have to copy whatever Fortune 500 companies are doing. While learning from other businesses is essential, remember that you have financial limitations.
Track every coin and assess whether all expenses are necessary before approving them. You can always hire an expert to offer budgeting advice if you don’t have the time. After all, a business owner can only do so much.
4. Pay Your Taxes on Time
The last thing you want is attention from the IRS. They will most likely want to audit your business, which can cripple its operations.
To prevent this, hire tax accountants to cover all your taxes. They’ll help you forecast taxes to allow budgeting and file all the tax documents when needed.
Be careful when choosing accountants, as they’ll influence your business’ direction. Ideally, go for professionals with years’ worth of experience and excellent reputations.
5. Develop Various Financial Forecasts
Though you cannot predict all business costs, you can forecast some to lessen your burden. Assess past and current market trends to identify the most likely costs. Then, create different scenarios, determine how they’d affect you, and budget for them.
The most likely expense today is rising supplier costs because of inflation. Set some cash aside just in case your suppliers decide to pass on the increasing cost of business to you.
You can also budget for routine expenses like equipment maintenance and technological upgrades. That’ll protect you from being blindsided by too many costs.
6. Invest in Your Employees’ Wellbeing
Employees are the source of some unexpected business expenses. A high employee turnover will result in staffing expenses. Similarly, employees’ illnesses will force you to incur more unforeseen costs.
So, it’d be best if you took care of your employees. Help them maintain a good work-life balance and create a good working environment.
Employees are less likely to leave companies that value and care for them. This helps you eliminate some of the unexpected costs you can control. So, you’ll have the cash to cater to those beyond your control if they occur.
7. Plan for New Hires
As you expand, you’ll need more employees to meet your clients’ needs. Many small business owners plan for salaries for new hires but forget other costs.
These include recruitment costs, onboarding costs, and training costs. You need to be ready to incur all these costs with every new hire. So, budget a few months before advertising for a new role.
8. Get Financing
It’s normal for you to be skeptical about taking out loans. After all, borrowing costs can be astronomical and ruin your business.
But not all external financing is bad. You’ll likely need help when you run into the most unexpected business costs. Don’t be afraid to take it.
You only need to choose the right lender and financing option. Shop around before settling on any lender, as they offer different rates and repayment schedules. Only agree to a repayment schedule you’re sure you can meet to stop late payment penalties.
Overcome Cashflow Problems by Learning Unexpected Business Costs Examples
You can’t always predict all your business costs. Some will come out of the blue and can cripple your business. Luckily, you can prepare yourself to limit their impact.
Start by understanding the costs that are most likely to occur in your line of work. Then have an emergency fund for if or when they occur.
And always keep a keen eye on your finances and employees’ wellbeing. Do this, and you’ll be ready for whatever cost comes your way.
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