To keep a small business running, you need cash on hand to cover all potential expenses — like payroll, materials and rent.
Some expenses, however, tend to slip through the cracks — and may come up at a time when your business isn’t ready to handle them. With the right preparation, you can plan for these often-overlooked costs — but only if you know what you need to look out for.
Here are five costly business expenses that are often forgotten by business owners.
1. Legal Fees and Other Expenses
If you fail to account for them, normal business fees quickly eat into the money you’ve budgeted for other expenses. When you’re starting a new business, it costs money to incorporate it. If you hire a lawyer to help with the proceedings, you could be paying even more — between $500 and $1,000 extra, according to Entrepreneur.
Frivolous lawsuits and other legal expenses can further cost your business. While the average settlement isn’t extremely high — according to the National Federation of Independent Business, most small-business settlements are less than $5,000 — even an expense of $1,000 can be devastating. They can also drive up how much you pay for liability expenses.
The best way to avoid and minimize fees is to plan ahead. Know who can provide your company with legal advice and defense, if necessary, as well as how much their services will cost you.
Salary, taxes and insurance aren’t the only employee expenses. Recruiting new workers often takes longer and costs more than business owners would like. On average, it takes a little over a month to secure a new hire. Replacing an employee paid near minimum wage can create as much as $3,500 in indirect and direct turnover costs.
The longer employees stay around, the more productive they tend to be as well. Over time, they’ll create more efficient ways of doing their job and build new skills. Losing people doesn’t just mean you’ll need to spend money looking for a replacement. You’re also missing out on the expertise that person acquired while working for you. Employees take as long as one to two years to acclimate to a new position — meaning you’re almost guaranteed to suffer some productivity losses in the case of turnover.
To manage these costs, prepare for training expenses and lost productivity and build a work culture that encourages employees to stick around.
3. IT, Web Development and Hardware
A web presence is foundational for most businesses today. No matter how high- or low-tech your company is, you’ll probably be working with some advanced tools, like videoconferencing apps and cloud-based file storage.
Your business will incur a few different monthly costs running a website — domain name, hosting, any plugins or tools you’re using, and troubleshooting if something goes wrong. You may also have to pay for and maintain hardware — like laptops or other devices for when employees are on the road and still need access to important documents.
Plan for the basics. If you’ve contracted out your web design, the developer you worked with may offer troubleshooting services. Some platforms and tools — like Shopify and Squarespace — provide support for free with subscription. Depending on your business’s size, contractors may maintain critical tech instead of permanent IT staff.
4. Repairs, Replacement and Upkeep
Equipment, vehicles, tools, your building — all these can get worn down over time and need replacement or repair. If you don’t factor in the cost of upkeep or keep good maintenance schedules, you could find yourself stumbling into some major expenses. If a critical piece of equipment fails, you won’t just pay for replacing or repairing it. You’ll also have to account for the downtime and reduced productivity as you and your staff figure out how to fill orders and work without tools you’re used to.
Damage to your building or roof can be even more costly, and may force employees out of the office or certain areas while repairs are being done.
Know how to save money on repairs and general upkeep. For example, you’ll want to know how to choose a good contractor. While searching, look for a contractor with ties to your area and a history of successful jobs with nearby companies. It’s also a good idea to field recommendations from other business owners and check out reviews before you commit to hiring.
You’ll also want to know how often you should perform basic maintenance checks on essential business equipment. Bringing in work vehicles or important tools for a regular checkup can help avoid serious, costly failures down the line.
5. Travel, Meals and Hotels
If your business hosts clients from out of town, you’ll need to pay for their travel, meals and accommodation. This can add up quickly, especially if you’re regularly seeing customers from outside your area.
You’ll also want to consider your own travel expenses. If you or your staff are regularly on the road, the cost of gas can quickly become a major expense. Because business mileage is sometimes tax-deductible, you’ll also want to keep track of how much you drive — otherwise, you could be missing out on savings.
Strategies for Avoiding Overlooked Costs
To be prepared for overlooked or unexpected costs, continue to practice good cash control — especially if your typical sources of income have been interrupted.
The best way to avoid specific costs is to know they’re coming. Good bookkeeping will help you plan for the future based on how much your business has spent in the past. It will also help you or your accountant figure out which deductions you may be eligible for. Then, you can be confident you’re in control of your expenses.