No matter what business you’re in, unexpected business costs always seem to creep up – especially over the upcoming holiday period. Sometimes, even seemingly inexpensive surprises can throw a spanner into the works. Finding the cash to repair a plumbing problem, replace broken equipment, or tackle some other emergency is challenging if you’re not prepared for it.
While not all businesses or surprises are the same, here are some of the most common unexpected business costs you might face:
Equipment breakdowns
This could include a coffee machine, construction equipment, machinery or even a computer – depending on what type of business you run.
In order to fix broken equipment, it is key to ensure that you either have access to a rainy day fund, or quick capital. This is especially important if your equipment is critical to your ability to do business.
Problems with utilities
If you operate out of an older building, it’s not uncommon to occasionally face plumbing or electrical problems. The cost of digging up a sewer line to the street or hiring an electrician to rewire an old building could be an extra few thousand dollars of expense that you hadn’t planned for.
The business costs of growth
As your business grows, it tends to become more critical to hire extra employees. Often, this can result in business costs you had not previously anticipated. These could include the need to purchase additional supplies or training, or even a new desk and office equipment. Depending upon your business, ramping up a new employee can cost as much as several thousand dollars. With this, it’s important to remember that while most business owners want to see their business grow, growth can often be expensive in the short term.
Unexpected opportunities
Keep in mind, not all surprise expenses are the result of a problem. Sometimes the requirement for extra capital might result from new unanticipated opportunities.
It could be an opportunity to purchase quick-turnaround inventory at a steep discount, or that piece of time- and money-saving equipment you’d been looking for. While these opportunities are (for the most part) beneficial in the long run, they still require an unexpected increase in short-term expenditure.
These are just a few of the unexpected business costs that can take small businesses by surprise. Of course, there are others – like the costs associated with launching a new marketing campaign, or expenses required to introduce a new product.
Planning for unexpected business costs
A rainy day fund is a good place to start. However, it can be a challenge to determine how much is necessary to set aside to cover unexpected costs.
Many business owners choose to set aside a fixed amount every month in the hope that it will be enough. Alternatively, taking a more strategic approach to anticipate where extra capital will be needed can help make it less surprising.
Ask yourself a few questions and take steps to prepare:
1. How old (or reliable) is the equipment I need to conduct business?
There’s nothing wrong with older equipment (provided it gets the job done). However, if it’s critical to doing business, it might be a good idea to have it checked by a professional. Doing so could help you prepare yourself with the cash you need, so you’re ready if any issues do arise.
2. Do my suppliers regularly offer discounts I can plan for?
Many suppliers, like many other businesses, may have ebbs and flows in the amount of business they do over the course of a year. So, if there are standard times that they typically offer extra discounts, you can take advantage of this. By planning ahead and ensuring you have adequate cash available for this opportunity, you could avoid additional unexpected costs.
3. Do I plan to hire a new employee or two next year?
Onboarding new employees doesn’t have to be expensive, but there are costs associated with a new hire — particularly if the hire is part of an expansion or growth initiative. Fortunately, a business owner can usually anticipate hiring a new employee. Planning ahead and considering the potential additional costs will help you prepare for any new employee’s first day.
4. Is my business going to need extra attention this year?
Fortunately, many plumbers, electricians and others will inspect your plumbing or electrics to evaluate the potential for a problem. With this, they can likely provide an estimate for possible repairs. Moreover, you could even catch and resolve an issue before it becomes more expensive.
In addition to saving for a rainy day, business owner can use short term financing options to access capital quickly.
Online business lenders like OnDeck can approve loan applications and have cash in your business bank account within a day or two. Nevertheless, strategically looking ahead at potential business costs is still a good idea.
There’s an old adage that most small business owners can appreciate: Plan for the best, but prepare for the worst.
