The Hidden Costs of Running Your SME

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While a SME business plan can help you to track the cost of buildings, equipment, stock and staff, there are many hidden costs that your business plan may overlook. These hidden costs can be very difficult to detect, but accumulate over time and can cause serious damage to your finances.

Below, we address a range of commonly overlooked SME costs that managers need to address. Identifying these hidden costs and proactively defending your SME against them can be hugely beneficial for your long term financial growth.

High Staff Turnover

SMEs tend to suffer from a higher staff turnover than their larger counterparts, which means that staff members are regularly replaced by new employees. While this is common for small businesses finding their feet, managers may not recognise the financial costs it entails.

Regularly employing new staff is a time-consuming task, and ultimately it reduces your company’s productivity, therefore inhibiting financial growth. According to a report last year by Oxford Economics for employee benefits specialists Unum, it can take 24 weeks before a new SME worker is fully productive.

And this only accounts for the time spent training new employees in their role. Additional hidden costs include the logistical costs of recruitment, from advertising to agency fees and time spent interviewing candidates.

Managers need to be aware of these costs, and look to negate them through a speedy but thorough recruitment process. SME managers may also want to consider working on employee retention to reduce the level of staff turnover.

Low Employee Productivity

Following on from this, low staff productivity in general will have an obvious financial impact. According to the CEO of the Leesman Index – a measure of workplace effectiveness – only 54 per cent of employees agree that their workplace enables them to work productively.

Everything from unnecessary meetings to email overload can inhibit employee productivity. Identifying whether this is an issue and working to streamline business practices will help you to improve productivity and avoid the hidden costs of low productivity.

Intellectual Property

As SMEs find their feet, managers may often see protecting their Intellectual Property as unnecessary and time-consuming. As IP expert Elizabeth Ward, founder of Virtuoso Legal says, “It’s important not to waste time when it comes to protecting your IP as there is often a limited window in which to act. If you fail to file for a patent or register your trademark, a competitor may beat you to it – which can spell the end of your big business dreams.”

Being proactive with your IP assets is the best way to avoid the costs that may occur if a competitor tries to claim your business idea.

Long Payment Times

As a small business starting out, managers may be too lenient when it comes to invoicing payment requirements. Research by e-invoicing company Tungsten shows that 12 per cent of the UK’s 5.2 million SMEs allow customers 90 days or more to pay their invoices.

As Darren Fell, CEO of Crunch Accounting says, “Allowing your customers 90 days to pay an invoice is incredibly bad practice – you're waiting an entire quarter before receiving payment. If you insisted on 14- or 28-day payment terms you receive money faster, can pay your own bills faster, and can reinvest the money in your business.”

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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