Kicking goals in business is almost always more expensive than you think. Even with the best planning, there’s always going to be a hidden cost that you forgot to capture on your planning spreadsheet. Thinking of every hidden cost is nigh on impossible, and that’s okay – what’s important is that you consider the big surprises that could derail your business. Here are four hidden costs to start with.
Do More With Your Staff
If you’ve employed staff for a while, you’ll be well accustomed to the true cost of labour. On the other hand, owners of businesses employing staff for the first time are often surprised by the impact on the business’ bottom line. In most jurisdictions, employers are responsible for holiday pay, superannuation contributions and sick leave. In some countries, competition for top talent involves employers covering the cost of health insurance and even accommodation. A $60,000 salaried position could easily have a real cost of $80,000.
One of the best ways to keep costs down is to use technology wherever possible. For example, switching to online inventory management rather than running stock control through spreadsheets can help you do more with the same number of staff.
In any business, it’s important that you have a steady cash flow to keep the wheels turning and the lights on. Expenses like buying inventory, paying wages and leasing premises grind on, and it’s important you’re not always digging into capital to cover these costs. Even where a business has a loyal customer base, there’s no guarantee of a steady cash flow as even loyal customers forget to pay their invoices on time. This means that costs mount so to pay your bills on time, your business either has to set aside a cash buffer, tying up much needed capital, or borrow money at an additional cost.
Bringing debtor days down is a great way to keep these costs down. Setting out clear payment terms and regularly checking in on payment can help maintain your business’ cashflow.
Any stock-based business is at risk of losing money to inventory shrinkage. Shrinkage essentially refers to a loss of inventory between procurement and the point of sale. Damaged goods and staff dishonesty are commonly associated with shrinkage but, in reality, a wide range of factors can cause stock loss. Short shipments from a supplier or picking errors that lead to customers receiving extra product are also common causes of lost inventory.
An online inventory management system is a great way to keep track of inventory coming in and going out. Using inventory management software also makes it easier to run a lean business, reducing the amount of inventory that is at risk of damage or obsolescence.
Lawyers, consultants and accountants are often an unavoidable expense as your business grows. That said, they’re often not an expense you should aim to drastically cut as lawyers can bring disputes to an early end, consultants can help you identify inefficiencies and accountants can help you minimise tax.
Smart planning and meticulous record keeping makes it easier and quicker for professionals to do their job, helping you keep costs down. For example, using online inventory management to keep track of orders and sales can reduce end of year accounting fees. Consider engaging with professionals early on resolving a problem early can help your business avoid fees, penalties and costly disputes.