The Unexpected Costs Guide for The Small Business
In those early, exciting days of establishing our business, most of us will do the traditional process of outlining all of our known expenses on a beer mat. Aptly, it’s called the beer mat method.
Suffice to say, there’s only so far in which this process can go. It will give you a rough idea of how your business is going to pan out, but as time progresses you need more solid numbers.
Unfortunately, every business is going to be different. The costs for one industry are going to be much different to another. However, through the course of today’s article, we are going to provide a general outline on some of the unexpected costs that can arise in most companies to help you along your way.
The cost of shrinkage
Shrinkage is a term that you probably know little about right now. Once you have been involved in business for a short while, all will start to become clear though.
Put simply, shrinkage involves any loss of inventory. This could be through something perfectly accidental; for example, what if you had a leak in your warehouse which caused items to be damaged to an extent they couldn’t be sold? Granted, your insurance might cover the above, but it would still leave some sort of hole in your finances (whether it was via the insurer’s excess, or even the loss in time as you bid to source replacements).
It can also cover some darker examples. An obvious case is theft. Regardless of the culprit, whether it is employees or the public, it is classed as shrinkage and is rarely accounted for by businesses.
How much should you account for? There’s no hard and fast number, but in the US it is understood that shrinkage costs businesses $46bn per year.
The cost of debt collection
By a similar token, let’s talk about debt collection. Again, it’s one of those issues that you won’t forecast; after all, how can you gauge how many clients or customers won’t pay for goods after agreeing to purchase them? Over time you might be able to gain a rough idea, but during the early days it is nigh-on impossible.
This is where you need to find out how much a typical debt collection agency costs. Try and find industry figures, and account for it in your financial forecasts.
The cost of selling
This next one always raises a few eyebrows. A common misconception is that your profit is the cost that you bought a product for, minus the cost of selling it.
As you’ll soon start to find out, there are all sorts of hidden fees that enter the equation. We’re not talking about capital either; but rather transactional costs. For example, if you accept credit card payments, you’ll be charged between 1% and 3% on every transaction. Suffice to say, over time, this will eat away at your margins. After all, it’s not charged on your profit, but the overall selling price.
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