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The Hidden Costs of Running a Business

Starting up a small business may sound like a dream; being your own boss, making your own hours and the potential to make as much money as you want all sound very attractive to budding entrepreneurs. However, there are a number of hidden costs related to starting up and running a small business, and if you’re caught off guard they could potentially add up and run you dry.

When running a small business, it’s important to manage cash flow on hand to cover recurring payments in a timely manner. Small businesses should budget for hidden expenses and unexpected costs that may pop up along the way, and while cash flow and savings are certainly important aspects for small business owners to in regards to being protected from unexpected costs and hidden expenses, it’s equally as important to stay protected through a New Jersey Small Business Insurance policy.

According to a recent article from Nasdaq, there are quite a few hidden costs that can quickly add up and harm your business, unless you prepare for them.

Shrinkage

Shrinkage is a term that refers to the reduction in inventory that results from employee theft, shoplifting, administrative errors and in some cases, product spoilage. The National Retail Federation estimates that retailers in the US lose approximately $45.2 billion dollars annually to shrinkage. While it’s impossible to completely avoid theft from happening, business owners can reduce the risk by implementing loss prevention practices.

Employee Turnover

It’s inevitable. Employees leave and you must replace them. The average employee turnover rate in the United States is approximately 19 percent per year, based on the 2016 Benchmarking Report from SHRM. Replacing employees can prove to be costly for small business owners—not only in terms of monetary costs, for which cost-per-hire average is $4,129, but also in terms of dealing with unemployment benefit claims, recruiting replacements and training. The average time it takes to fill an open position is 42 days, leaving small business owners to compensate for being short-staffed.

Payroll Taxes and Benefits

An employee’s wages are only a small part of the cost of employment. Additional costs for small business owners include employment taxes, workers’ compensation, and fringe benefits. According to MIT, the overall cost of hiring a new employee can run from 1.25 to 1.4 times the basic pay, when you factor in payroll taxes, benefits, and other additional recruiting expenses. This means that hiring an employee with a salary of $50,000/year can typically end up costing the business owner somewhere in the ballpark of $62,500 to $70,000.

Legal Fees

According to the National Federation of Independent Business, small businesses are the biggest victims of frivolous lawsuits. These types of lawsuits can really set small business owners back with attorney fees, settlement costs, time spent in court and even higher insurance premiums.

Repairs and Replacements

Things break, especially when they’re being used day in and day out. Depending on the equipment, the cost of repairs can be more than expected – and buying new replacement equipment may even require taking out additional loans.

Small business owners should account for their equipment maintenance in their budget, and have an idea of what the costs of replacement or repair might be. Regular maintenance is another expense to have to budget for, but is a lot cheaper than dealing with costly repairs or replacement purchases.

About Associated Specialty Insurance Agency

At Associated Specialty Insurance Agency (ASIA), we specialize in Workers’ Compensation needs for a variety of businesses. Depending on the type and size of your business, we aim to foster a sense of safety and protection within your clients’ company with our industry specific underwriting expertise. For more information about coverage throughout our target states of New Jersey, Pennsylvania, New York, Connecticut, Delaware, Maryland, Virginia, North Carolina and Florida, contact us today at (866) 679-7457.

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