3 Hidden Costs of Running a Small Business

Karen Kleinman
10/12/2022 11:42 AM (update 08/21/2023 01:14 PM)

Too many new entrepreneurs fail because they underestimated the actual costs of running a small business. This is why one of the first people you should be talking to when starting a business is an accountant. You should also try to learn as much as possible about the everyday operations of the type of business you are thinking of running and know some of the costs all small businesses have to deal with when getting started. Here are some of the costs that are often overlooked by new small business entrepreneurs.

Insurance
A lot of business owners don’t take the time to calculate how much they’re going to need to spend on insurance. Many of them, for instance, don’t know that they need to get business insurance on top of home insurance if they run their operation from home. Many also don’t understand the difference between things like general liability insurance and business insurance and don’t even know the answer to the question, ‘what is small business liability insurance?’.

If you want to know what is small business liability insurance, it is a type of insurance that will cover you in case you cause injury to a third party while selling products and services. This could be a manufacturing error, you causing damage to one of your client's property, or someone getting injured on your premises due to negligence. So, it would be wise to learn about liability insurance right now as a lawsuit could be all that it takes to sink your reputation and your business.

Recruitment
A lot of people also don’t factor in all the costs related to recruitment. They think that it's all about posting listings on job sites and waiting for candidates when there are many more things that need to be factored in.

You will spend more time and money on recruiting if you can’t manage to keep employees, for instance. Training employees and constantly having new employees means that your production will suffer. This is why you need to focus on hiring properly to keep your costs down.

You might also want to consider hiring a third party to handle HR for you. They will not only reduce your recruitment costs over the long run but allow you and your team to focus on tasks that will contribute directly to your business's bottom line.

Technology Costs
We’re not talking about electronic equipment costs, since most small business owners have these covered when they start. What we’re talking about are all the services you’ll be using.

You might have to use a variety of subscription-based services like CRM, web hosting, IT management, and cloud storage, among other things. These might seem minor on their own, but they can add up at the end of the month. So, make sure that you mark down every service you might have to use and get the estimated costs based on your forecasted usage.

These are all costs that you’ll need to have down before you even think about starting a small business. Knowing them will reduce the risk that you suffer cash flow management issues, or worse.