A recent Shopify survey showed that new businesses spend an average of $40,000 in expenses in their first year. That’s a hefty sum no matter what your small business does, and for many entrepreneurs, there’s little room for error when it comes to costs.
Unfortunately, all businesses incur unexpected costs, and it’s better to embrace the fact there will be expenses you didn’t plan for than to assume you won’t have any.
The good news is that there are some patterns of unplanned costs that entrepreneurs can assume will occasionally impact their business. Here are five that could set you back $1,000 or more.
While many unexpected costs can have adverse effects on your business, it’s not always the case. Sometimes, opportunities come along that are too good to pass up, and you might need to spend some extra money to take advantage of them.
For example, maybe a space opens up right when you need it to in a perfect location for your business, but you haven’t planned for moving costs or a rent increase. Or, perhaps, you come across some new machinery that will make your business far more efficient and productive, but you haven’t previously budgeted for it. You may also discover a new product or service that you need to invest in but hadn’t previously set money aside to create.
Having a financial plan that leaves little room for new opportunities could help you jump on them when they pop up. But planning ahead could help you invest in new growth when you have the chance.
Almost all small businesses have equipment costs, whether computers, factory equipment, ovens, or point-of-sale terminals. If you buy most of it new, it can be easy to forget that it’ll need to be repaired or replaced at some point.
You should plan for your equipment to need repairs or replacement every few years, and for many small businesses, that could easily cost more than $1,000. While it may not be in your budget to set money aside in a business bank account for future equipment needs, you should at least create a schedule for when you expect the equipment may need servicing.
Inflation has weighed on many small businesses as their costs for nearly everything have risen significantly over the past few years.
Recent data shows that 22% of small business owners say inflation is their biggest challenge. And while the Federal Reserve has made some progress in slowing it down, small businesses will likely feel its impact for a while.
While you may not be able to calculate precisely how much your supply costs will increase, you can better understand your expenses by using expense management software to see where your costs are rising.
You may have hired a professional to help do some market research or consulted with a lawyer before you launched your business. Tapping into professional expertise is a critical move for entrepreneurs who may need extra help navigating complex areas of their business, like accounting or small business taxes.
However, some small businesses may end up spending more on professional fees than they expect. According to data from UpFlip, the average fee for one year of legal services for small, home-based businesses is $2,000. Planning for this cost could help avoid sticker shock when reaching out to professionals when you need their services.
While it’s unlikely that you’ll never need a professional, you can tackle some potential costs on your own using small business software, like accounting software.
Inventory shrinkage affects nearly every type of business and can be impacted by many factors, including theft, lost or misplaced products, and inventory damage. The retail industry may be the most affected by shrinkage, with the National Retail Federation estimating that it costs the entire sector $112 billion in losses in 2022.
Many businesses could easily lose $1,000 annually to missing or stolen products, and one way to know how much shrinkage affects your business is to track your inventory expenses.
While there’s no way to map out your unplanned expenses, having a few ideas of where your business is most vulnerable could help you budget for some of them. Or, at the very least, keep you from being caught off guard when they occur.
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