By Scott Hines
President and CEO
Operating a small business is like managing a home…there are fixed expenses, planned outlays, and then there are all the hidden costs…things you really didn’t plan on. The good news is your community banker may help because they have worked with numerous small businesses in your area and perhaps guide you in understanding and planning for most costs you will likely incur – planned and unplanned – as you start, grow, and maintain your business.
Here are six hidden costs to operating a business, and how your community bank may help.
1. Business Registration and Fees
When you are just starting your business, you will most likely need to register for state licenses and permits depending on the type of business you want to operate. Most often, you will decide if you want to register as a corporation or a limited liability company (LLC).
You’ll also want to register the name of your business. And you’ll want to consider trademarks for your name, services and/or products.
Many of these services will require one-time fees, and some may have annual costs. Your community banker deals with businesses daily and may help guide you to what you need to do to start your business.
2. Office Space, Furnishings and Equipment
When you are first starting your business, think about the physical space you’ll need, what office furnishings are a must and the equipment you must have to operate from day one. Renting or purchasing office space will be one of your greatest expenses…along with getting it constructed to meet your needs. Furnishing your company and putting in the necessary equipment will be right behind your space costs.
Consider what you need to open your business. Can you work from home initially? Can you share space? Can you take over space that had similar work requirements? Remember utilities like water, heating, cooling, and your internet connections. Also consider small equipment needs like phones, computers, printers and miscellaneous needs like ink and paper. These hidden costs can add up and are ongoing.
Your community banker may help you sort through your options. They may also offer credit products that provide funds to businesses for operating needs. Check with your community banker on the loans and lines of credit available to you as you start and grow your business.
3. Employee Payroll
When Founder of The Virgin Group Richard Branson said, “Take care of your employees and they’ll take care of your business,” he knew what he was talking about especially when considering hidden costs. If you need to hire employees, know this will be another area that is a major fixed expense…and an area where you’ll find hidden costs.
To take care of your employees you’ll need to consider training, competitive wages, and benefits along with a conducive work environment – physically and emotionally. Replacing employees can become a huge hidden cost today. There is a cost to recruiting, onboarding, and training…not to mention a strain on your business productivity and even moral. There are perks that cost little like flexible work schedules, opportunities to work from home and a relaxed office atmosphere with casual dress.
One area where community banks may help you regarding your employees are payment systems. Most banks offer help with payment systems to help you conveniently pay your employees and keep accurate track of your payroll expenses. Your community banker may help you set up an automatic payroll plan to help pay your employees and maintain accurate records of your payroll expenses.
4. Unexpected Payment Delays
Your best laid plans and budget must also include unexpected payment delays. Unfortunately, even the best of plans cannot account for the customers who forget to pay you, holidays that delay payments or mail that is unusually slower than planned. At the same time, your payments to your vendors, utilities and other bills must go out on time. Even with unexpected payment delays, you still must cover your payroll, rent, insurance and other bills. Late payments can mean extra fees, higher interest rates and potentially unmanageable debt. You will want to talk with your community banker to establish a plan of action. Your community banker may guide you to the best way to get your receivables paid as soon as possible.
5. Credit Card Fees
Whatever your business, if you want customers to pay for your products or services quickly, conveniently, and efficiently, you’ll want to consider offering a credit card option. Depending on volume, make sure to account for the vendor fee which is usually about 3 percent of each total charge. You can build this cost into your services. You can offer a better price if paid in cash. And you can accept that you have the money to use almost immediately when customers pay by credit card. Using a Total Card Management Program (TCM) through your community bank can help you save fees in most cases. Talk with your community banker about their TCM program and the advantages and disadvantages of incurring credit card fees and possible discounts.
6. Professional Fees
As you start your business, you will most likely want to consult with a few professionals – particularly, a lawyer can you set up your business, an accountant can help you with business taxes and a marketing consultant can assist with advertising and promotion. You will find these professionals are specialized in business startups and growth. Therefore, they can save you time and money at startup and while you grow. At the same time, they can incur a lot of hidden costs initially if you are unaware of how they charge for their time. Often, you can explain that you want to keep costs to a minimum and they will assign a junior partner or assistant to help you. You can also ask your community banker. Again, because they are working with small businesses in your area every day, they may know someone who can help you and keep fees to a minimum.
If you can envision the idea that operating a small business is like managing a home, you’ll understand how hidden costs can pop up unexpectantly in addition to your fixed expenses and planned costs. Keep in mind, nothing will take the place of a solid business plan and operating budget. And there will always be some hidden costs. However, your community banker may provide help with your plan, budget, and hidden costs. They work with numerous small businesses in your area daily, so they see it all. Your community banker may guide you in understanding and planning for most costs you will likely incur – planned and unplanned – as you start, grow, and maintain your business.
See a community banker today at Kalamazoo County State Bank (KCSB). KCSB has the necessary business services to help you manage your daily operations efficiently, securely, and easily. To learn more about KCSB’s business services including business loans and lines of credit, see Your Guide to Business Banking, call 269.679.5291, or visit a branch office. See https://kcsbank.com/locations to find a location most convenient for you. Discover a more personal business journey with your community banker today!
Kalamazoo County State Bank is an Equal Housing Lender and Member FDIC.