Unforeseen expenses in business are always going to occur. The irony! However sometimes even minor hiccups in regular expense patterns can have a serious impact on small business. Finding the money to fix a plumbing issue, for example, replace equipment that has broken down, or having to negotiate about a faulty product or arrange a refund with a dissatisfied customer can cause problems if you aren’t adequately prepared.
The issues that arise and the impact they have, will depend on how established your business is, and how prepared you are. Here are a few tips to help you avoid common ‘surprises’ in small business expenses.
Start-ups, avoid short-sightedness
The common costs most overlooked when starting up a business are listed below. Importantly, make sure they’re all accounted for in your business plan or forecasting, especially in the event that you are seeking finance. An SME accountant or small business expert will be able to help you estimate or calculate these.
Make sure you consider:
- Legal or accounting fees
- Insurance costs
- Credit card and loan interest repayments
- Advertising costs
The ‘Big 4’ unexpected costs to SMEs
Once your business is up and running, unexpected expenses – and the risks associated with not preparing for them – are going to be greater. In fact ,experts agree that even one of the “Big 4” can have the potential to affect the stability of, or worse, cripple, any SME.
- Equipment repair & replacement. The cost of replacing or repairing a critical asset could make or break your business. Even if you are insured there could be a need for cash outlay while you are waiting for that process to occur so you can continue operating.
- Problems with utilities. If you are operating out of an aging building or premises you may encounter electrical or plumbing issues. The costs of rewiring a building can run into the thousands.
- Business growth. As your business grows and develops you may be looking at staff or contract costs, bigger premises, training, more equipment or higher stock levels.
- Opportunities. Not all expenses stem from problems! Perhaps you have the opportunity to buy discounted bulk products or upgrade to that piece of time and energy-saving machinery or technology that you’ve been watching. Even though it will eventually increase income, there is still the need for the short term investment or expense you’ll need to be prepared for.
Aside from the Big 4, there are other worthwhile ways that you can prepare for the unexpected, depending on your the size and type of business you’re operating.
Not always easy, but it’s possible – and important. Understanding and documenting potential unexpected expenses in your business plan is critical. Consider putting some money aside during your strong months, or saving the tax return instead of spending it. Be realistic.
Check your finances
Financial checks against your business plan need to be monitored frequently as you start up your business so that you can adjust your forecasting. Keeping a handle on your balance sheet, income statement and cashflow will provide clarity, and will assist with planning ahead.
Insure your critical assets
Insuring property, vehicles, and equipment means if anything should happen, you can keep operating (in most cases). Business insurance can protect you from future losses and other intangible costs. Shop around and get the best cover for your business and situation.
Keep on top of your tax obligations
This includes not only what you owe, but keeping track of spending that’s directly involved in your management and operation of the business. If this all gets a bit too much you should seek advice from a tax or accounting professional to ensure that you are getting it right, and benefiting from the maximum return possible.
Consider additional finance
There are other options such as business loans and business credit cards with varying limits to help in emergency situations. Like borrowing against anything, borrowing against your business is risky so do your research and seek advice from SME finance experts.
Few things can hurt a small to medium business like unexpected expenses. So preparing for and managing potential issues is critical to ongoing success. The best thing you can do is plan correctly and diligently from the outset, and party of that means ensuring you have the best advice and support you can get.