In any business, preparing and developing strategies is vital for successfully reaching company goals and generate revenue. This includes taking into consideration any fixed costs and expenses in order to avoid any payment delays or the inability to pay altogether. Any company has to clearly put together a budget and stick to it as much as possible. Creating a budget is dependent on the company’s profits or its ability to get a loan to avoid the issues mentioned earlier in terms of payments. What’s more, this also prepares you for any unforeseeable expenses, in case there are any.
However, even if you and your accounting team plan every aspect while taking into consideration the business’ financial situation, there is a possibility you are unaware of some unexpected costs. Chances are, this is more likely to happen to small-size firms, given that corporations are much more prepared to forecast these expenses and have the capital to deal with them.
But when it comes to a smaller business, how can you properly prepare and not let these unexpected costs catch you off guard? We have compiled a list that can help you avoid this situation.
Rent increase
Many businesses decide to rent their office space, or if the company deals with the selling of goods or products, a brick-and-mortar business is likely to rent the space for the operation of physical retail shops. Regardless of the number of locations you are renting, there are things that can happen which can cause a rent increase. This is unpleasant as it can also be entirely unexpected, so it isn’t much you can do to plan for this cost ahead of time.
For instance, the landlord might have to adjust the rent amount to be able to meet the demand and keep up with the real estate market increase. In case commercial renting prices are rising due to the local economy growing, then it might not be entirely unexpected that your landlord will increase the rent. However, if this happens due to improvement needed to the building, then a surge in rent will be challenging to meet. In this case, before you start packing everything up, it is crucial you try to negotiate with your landlord, as there might be several options that can support you depending on the contract you had signed. For example, you might be able to pay the additional cost in installments.
Insurance and compensation costs
Purchasing business insurance is not an unexpected cost. This is quite an obvious aspect, as any business needs to have insurance in case of accidents or incidents, such as a fire or a natural disaster. What’s more, it is a legal requirement when you have a business with employees to purchase insurance in order to protect the company financially as well as its human capital.
However, it can become an unexpected cost if you are not aware that, when the business grows, you might need to acquire more types of insurance. Not to mention, if it happens you need to claim your insurance, chances are you will need to pay extra for a renewed insurance plan.
Among the insurance types you need to procure as a business, you will need to have employees’ compensation, healthcare, and retirement packages, which will also directly increase with any employee you hire. These are crucial and mandatory for any business in case any work-related injury or illness happens, and you need to provide benefits to the injured employee. This way, you are protected from any lawsuits.
Compensation claim specialists from How-To-Claim explain that “Employees are entitled to a safe and secure work environment and the certainty that they will be taken care of in case of an accident. Depending on the nature of the work and whether this includes handling hazardous materials, working at heights, or handling heavy machinery, employees need to be provided with compensation if they suffer from an injury at work”.
Equipment failure
Suppose your business operates with the use of specific equipment and machinery. In that case, it is likely you have taken into consideration the cost of one of these failing and needing reparation or replacement. However, you never know when this can happen. Also, even if you consider the cost of repairing a piece of equipment and include it in your business’ budget, you still might not be able to foresee the gravity of the failure. What’s more, you might need to replace a specific part that, unfortunately, you cannot afford or it takes too much time to get it, in which case that would mean to cease production and lose money. If this happens, a solution would be to apply for a bank loan for which you don’t have to meet demanding requirements, and it wouldn’t be too difficult to repay.
Another type of equipment that might break down is your electronic devices. No matter the type of business you have, you will need to purchase electronics. If you are a small business, you might not want to add insurance to it, thinking it won’t be necessary at this stage. However, as reliable and indispensable electronic devices are in this day and age, there is no guarantee they won’t stop functioning out of the blue. Purchasing another one can be more expensive than buying it with insurance. So, you might want to add one more type of insurance plan to avoid the unexpected cost of a new computer.
Taxes can bring costs
Although when you have a business, you are aware of the fact that doing taxes is of the utmost importance to avoid penalties, there are still unexpected costs that can occur. For instance, there is a possibility you incorrectly estimate them or simply make a mistake before you file the tax return. If this happens, you will need to hire legal and financial advisors to help you clarify the situation. As much as this cost is essential, it will leave you with a significant bill for the professional help you required. To avoid this type of unexpected cost, you might want to allocate a sum for professional services into your budget or consider hiring freelance specialists – you can employ their services before the tax year ends.
