No matter what your personal motivations are for becoming an entrepreneur, at the end of the day, your business needs to make money to survive. That means collecting revenue in excess of your expenses and being able to successfully forecast those revenues and expenses so you can adjust your business if necessary.
Your business plan should outline some of your most fundamental expenses, including the cost of production and human resources, and help you project if—and when—your business can start striking a profit. But most new entrepreneurs end up forgetting or neglecting some key areas of business development.
Most Commonly Neglected Expenses
These are some of the most commonly neglected, forgotten, and underestimated categories of business expenses you’ll find:
1. Taxes. First, remember that you’ll be responsible for paying taxes on your business income. This is often neglected by first-time solopreneurs and freelancers, who get excited when they see their first paychecks with little to no money withheld. Make sure to use a tax calculator to determine approximately how much money you’ll owe at the end of the year, or if you’re starting a larger organization, work with a tax specialist to ensure you’re spending and saving your money the right way.
2. Insurance. As a business, you’ll also be legally responsible for having certain types of insurance (including workers’ compensation insurance in most states). On top of that, there are several types of insurance you’ll want to have in place to protect you and your assets from various threats. These include things like professional liability insurance, property insurance, product insurance, and business interruption insurance; added up, those policies can get costly.
3. Compensation. You’ve probably estimated how much your employees are going to cost your business, but what about yourself? If your business isn’t making a profit after a few months, you’ll probably need to start drawing a reasonable salary. If you do that, you’ll eat into the company’s cash flow and profitability, but at the same time it’s a reasonable (and sometimes necessary) expense; it’s just one that too many entrepreneurs neglect.
4. Maintenance. How much has your budget ascribed to your property’s maintenance? You might have allocated a budget for maintaining your most important equipment, but there are many other forms of maintenance that often go neglected in company budgets. For example, how much are you going to pay to take care of the yardwork or clear snow from your parking lots?
5. Travel expenses. Even if you aren’t traveling much, you should still have a budget in place for travel. The average cost to drive a mile in 2017 is now $0.608, which doesn’t seem like much but adds up quickly for traveling salespeople or other positions that need to drive on a daily basis. Make sure you’ve accounted for these expenses, since in most cases, you’ll need to reimburse yourself or your employees for them.
6. Legal fees. Few businesses get far without needing some kind of legal advice, whether it’s to finalize a partnership agreement or make sure a company is following the law during production operations. If you need legal advice, you shouldn’t skimp on legal fees—you’ll want an experienced lawyer who can give you sound direction. Accordingly, you’ll need to set aside some money for legal consultations.
7. Surprise expenses. Finally, we have a miscellaneous category that covers a variety of expenses you may incur as you work to create and expand your business. Expenses can come from anywhere, whether it’s recalling a product, fixing something that’s broken, or compensating for an employee who unexpectedly quit. Expect the unexpected.
Preparing for the Unexpected
It’s a good idea to meticulously track down every type of expense you might need to cover as a business owner, but all that planning can only get you so far. You also need to be prepared for the most unexpected expenses you face, by establishing a line of credit you can tap into, building up a pocket of emergency reserves, and having a backup plan in case your main lines of financing aren’t enough. No entrepreneur can predict every expense, but you can protect yourself from suffering damage from unanticipated expenses.