When you sit down to start brainstorming the potential costs for the new business you’re about to open there are probably lots of things going through your head. Utilities, rent, inventory, staff and advertising are big costs that end up in the cash flow part of the business plan first. There’s excitement as your ideas and projected revenues go from your research to print while this business plan comes to life. This plan is going to be your guiding light to the life that you hope to build and your application for the start-up capital. So here today I hope to shed some light on a few costs that you may have over looked that will be very influential on your revenue projections when you actually open your doors to the public.
1.) Insurance – Small business insurance is important because it protects everything that you’ve worked so hard to create. It can cover everything from negligence on the job, accidents that your customers or clients might have, professional malpractice suits, to key person insurance. It can provide a legacy for the business you create so that when you aren’t there anymore the business still can be. The costs are generally annual premiums and if overlooked can absorb more working capital than you may have thought. If you are starting your business out of your home to try to save costs never assume that your home owner insurance will cover losses of revenue or plant should something happen to the house. This is a pretty big topic to cover and a very subjective one because it’s based on your particular business. You can find out more about small business insurance from the Small Business Association.
2.) Merchant Accounts – So I’m pretty sure when you start your business you’ll want to accept more than just cash and checks. You might even have an e-store front where people can shop for your products or services online. In order to receive credit and debit card payments you are going to need a merchant account and some hardware to do it. Merchant accounts are essentially bank accounts for businesses that act as intermediary parking lots for funds coming from financial institutions for sales that you make. There are costs associated with conducting transactions like this and every business is subject to them. Some companies (off the top of my head I know North American Bancard does this) that offer credit card processing service might require you to lease or rent their card processing terminal which adds an upfront cost, and there are per transaction costs based on volume of sales and possibly even the dollar amount of the transaction. I know that North American Bancard and a few other companies will explain the costs associated with opening a merchant account thoroughly.
2.5) Fraud – Now I know that “fraud” isn’t something you go out, spend money on, and consume but there are costs associated with protecting yourself from and dealing with it. This goes along with the previous two because there are lots of companies that offer insurance and merchant credit card processing services. The idea here is to always be aware of what you are consuming. There are tons of places online that offer business insurance and will gladly take your money offering products that are written so well (or underhandedly) in the event that you actually need to use the coverage the odds of your claim falling under one of the categories you pay for is slim to none. My rule of thumb is to always work with companies that I will have no problem reaching an actual person to talk to – along with being reputable and a possible leader in their industry. You always want to partner up with a company that has a great track record, low costs, and good service. If it takes time and energy to deal with a complication from a credit transaction not only is it costing you time and money to address it but the longer you have to deal with an issue the more revenue you could potentially miss out on. Yes, it does take time to set up and establish relationships like this but in the long run it can save money and the reputation of your business.
There are lots of places online where you can go and read about starting a small business and some rules of thumb to guide you. My goal here was to bring about some awareness to a couple of issues that really get lost in the translation of having that great idea to actual execution. I included fraud because I personally have been on the receiving end of fraudulent payments and had I not had the resources in place to handle it the headache it caused could have been massive. Instead I placed the issue in the proper hands, cleaned up my books, and moved on to the next client – which is exactly what you want to do should something like this ever happen.