So, you’ve started a small business. You’ve surveyed the market, found a demand for your product, and have developed a good business plan. Along with your savings, you’ve secured financing from a bank, family, and friends.
Perhaps you have enough to meet your day-to-day expenses. Unfortunately, many new companies struggle during their first year because they’ve underestimated their operational costs. Meeting these expenditures can be tricky for a small business that’s awaiting its next financial installment from a creditor and needs funds quickly.
Instead of relying on bank loans, when in a pinch, many new small businesses use alternative small business funding options, which have higher approval rates, faster processing times, and deposit money within days. Moreover, such funders look beyond traditional funding metrics to approve financing and are ideal for new businesses that lack a credit rating or a long history of success.
As a small business, it’s important to be aware of the following unexpected costs when writing your financial plan:
#1 Insurance, Permits, and Taxes:
It’s advisable to have general liability insurance and commercial property insurance for your business. The former will protect your company in case someone claims your business caused bodily harm, while the latter will protect the building your business owns. You may also need worker’s compensation insurance if you have employees and commercial auto insurance if your business uses vehicles. You could also need coverage for your tools, technology, and materials.
A good insurance agent can help you find the right coverage plan. Depending on your industry, you may even be obligated to have insurance.
Likewise, you may be required to have certain permits and licenses. For example, if you sell alcohol, then you’ll need a liquor license. If you sell lottery tickets, then you’ll need a lottery license. Aside from a business license, you may also need a local permit. Not only must you pay for these permits and licenses, but you’ll have to pay renewal fees.
You’ll also have many taxes to pay. For help, you’ll need to hire a tax professional.
#2 Maintenance and Upgrades
As your business grows, you may find yourself paying more frequently for maintenance and upgrades, especially if your company uses technology. Certain software upgrades can require yearly updates and these costs will add up.
#3 Payment Fees
With customers shifting away from cash, many businesses underestimate the cost of receiving payments. Credit card transaction fees are more than you think and can accumulate if your business relies on multiple sales a day. Likewise, the cost of receiving payments online can be surprisingly high. For example, if you maintain a merchant account with a popular e-commerce giant, then you’ll pay them 2.9% of the transaction amount plus a fixed fee. On a transaction of 1000 dollars, you could lose an extra 30 dollars at least.
Set aside funds for shrinkage. Goods can get lost, stolen, spoiled, or damaged. The average shrink percentage in the retail industry is usually 2% of sales.
These are four unanticipated costs that you should prepare for. If your new business is experiencing temporary cash flow problems, then reach out to an unconventional funder for fast help. Bridge financing can be the stopgap solution you need to meet unforeseen expenses.