How to Avoid the Hidden Costs of Starting a New Business?

  • 18th Sep'21
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Are you thinking of being an entrepreneur after college? A new business rings the bell of change in your life, a change of equation with your lifestyle through constant innovation and self-reliance. But the process of this powering through and taking charge of your career puts you in many puddles. Most people who venture into business to address an economic issue or live up to a passion are clueless about initiation expenses. Knowing how to be prepared is effective in the moment of thrill and confusion of setting up your business. It will keep you calm and help you deal with the finances at the beginning efficiently. The preparation involves knowing the hidden costs and challenges of starting your own business. We will look at some of them in the article and understand ways to avoid or reduce them.


Hidden Costs in Start-ups 

Start-ups and Businesses mean a great deal to the owners, possibly as they bear the brunt of responsibilities and challenges resulting from them. Businesses demand hard work and constant attention but what's more promising is the investment that goes into it. Hence, it's about the business plan and understanding the expected start-up costs when starting a new enterprise. Mastering the financial aspect of running a company provides an edge to entrepreneurs. So, let's know some of the hidden costs during the initial phase of setting up businesses. Once you know the drill, you can assume the loss or take the necessary steps to avoid it.


hidden cost



As you decide to launch your business, you will have to do start-up funding either from your pocket or borrowings. Now, a new enterprise mainly relies on a bank loan, but the mortgage guarantee and other requirements add up costs like interest on the loan, which increases the payback value immensely. It is prudent to rely on other sources for investment like self-sourcing, venture capital, crowdfunding, or borrowing from friends and family.




Employee Costs

There is a massive cost to the enterprise for the staff you maintain. No knowledge of tax filing policies and insurance regulations can make you pay extra. Hence, hiring a business accountant and a virtual assistant (for online businesses) is a mandate as they help deal with licensing and other fees without much hassle. Apart from that, think about the amenities you provide to your staff, starting from incentives, bonuses to health insurance, and gym membership; they add on to the salary cost of the employees. 

Make use of accounting software and tools that help you do budget management at the starting of the business. Calculate and estimate what you are likely to spend on each employee based on his job description. Assess the total to avoid any last-minute panic.

The majority of early-stage businesses cannot afford to pay market-rate compensation to their staff. They let their employees buy shares in the firm with stock and equity options, this employee stock compensation allows them to make competitive remuneration offers.


Office Equipment

It was the major part of business expenses until the pandemic crossed our paths. Renting a space, bringing in tech tools like machinery, computers, phones, gadgets, and other office equipment can cost a bomb to new product or service businesses. However, now is the time you can mindfully evaluate how you want to conduct your business. Do you know how to set up your virtual business, or do you need a physical workplace? Most back-end service companies have resorted to their home offices, and the employees have adapted to the work standards by now. But it is not a feasible option for front-end jobs. So, while evaluating the office expenditures, visualize your long-term goal so that you can manage your funding wisely.


Insurance Cover

An inevitable part of the business is predicting losses. Insurances help cover these losses with a certain amount to claim, and it helps. But paying the premium for property, employees' health, death, negligence, and uncertainties year after year takes a toll on the start-up's finance sheet. This amount certainly keeps adding on as your business grows. Hence having an estimate for the spending helps, and it is wise to ask for a discount from the insurers if you have a good record. Review the coverage documents from time to time to update with changes if required.




Inventory Tracking

Ensure you spend on barcode readers and trackers to check your stocks in your warehouses and when you transit freights. Loss in the way or during shifts is common and can work against your budget if you do not plan early. Invest in a warehouse management system to count the stocks of raw materials to finished products and provide for your losses in your balance sheets.


Payment Card Fees

Vendors have to pay about 2 to 3% of fees charged during a credit card payment by a customer. Also, avoid high-interest rates on late payments of credit card debts. Also, understand the pricing policies and current rates to foresee the charges and provide for them in advance.


Tax Costs

Sometimes start-ups underestimate the taxes they have to pay to the federal government. It can be much more than you predict, with penalties adding on to the number. It is essential to assess what better you can do with the business to pay fewer taxes. Also, invest in Retirement Funds, go for donations as you pick pace to help save on tax costs.


Build Your Strategy

Entrepreneurs and their roller coaster rides are what make businesses get to the success point. But it is wise to strategize the investment factor so that the hidden costs and additions do not surprise the entrepreneurs. The characteristics of a scalable business involve careful planning and actionable steps in every mode of operation. Pay heed to the expenses while launching an online business because they are as important as offline businesses. The intricacies of forming a start-up company might look challenging, but it makes entrepreneurs the great leaders they become someday. So you see, there is more brainstorming to do than choosing a perfect name for your business. Did you think Walmart's Sam Walton, Facebook's Mark Zuckerberg build business empires so easily?


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*Note: The content published above was made in collaboration with our members.

About the author:

Supriti Tripathy, OpenGrowth Content Team

A believer of good things and pursuer of diverse avocation, she is a fiction lover and a simple writer. Supriti has a number of professions to her list and she feels challenges are the only answers to failures.

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