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The five highest expenses businesses face in the first five years

Feb 14, 2014

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There are a number of factors to be taken in consideration with the start-up of any business, and inadequate planning may lead to your company’s demise. One thing your business insurance does not cover is insufficient planning.

At the dawn of every enterprise, a plan is developed which outlines business operations, financial forecasting, and short-to-medium-term as well as long-term goals. Having periodic check-ups against these will enable you to adapt the business plan accordingly, and monitor performance based on what your initial financial forecasts were. This empowers you to make decisions as to what needs to be changed in your business operations now, in order to achieve success later.

Start-ups often do not survive the first five years of operation and so, if you are making your dream business a reality, you need to keep track of the highest expenses that you’re likely to incur within the first five years. In no particular order, the factors detailed below may form part of the highest expenses business owners are likely to experience within those crucial first five years of operation.

1. Equipment

The cost of the tools of the trade will depend on the industry your business is in, whether you’re in information technology, construction or health and wellness to mention a few. Every business will have expenses relating to the equipment needed for operation. In addition to specialised equipment, the more generic office equipment such as computers and telephones, is also required. Whatever category your equipment falls into, the odds are high that they’ll require maintenance or complete replacement within the five-year period.

2. Taxation

Planning for the taxes payable by business owners is often something that is not adequately catered for. Falling behind with your tax payments or not understanding the amount of tax that you’ll need to pay will lead to unexpected expenses, burning into your already tight budget. The last thing that you, as a business owner, would like is to have your doors closed because you haven’t been paying your taxes; or even worse – finding yourself headlining newspapers due to tax evasion. It’s something that many businesses are guilty of – even a mega brand like Starbucks. The key point to remember is that if they didn’t get away with it, neither will you.

3. Business Development

Adequate business development can be a tricky practice; it has much to do with prioritising the different development stages of your business. Much like playing chess, you need to be strategic about the manner in which you embark upon corporate growth and every action you take will need to be timed appropriately. Once you have completed your routine check-up, you should be in a position to make informed decisions with regards to the areas of the business that need to be focused on during the following quarter. At this point you should have an estimate of the resources at your disposal to roll out your business development strategy as well. Costly exercises, which form part of business development, encompass but are not exclusive to:

  • Attraction and retention of customers (this will often require an investment in marketing and advertising activities)
  • Recruitment of staff and expanding your workforce. The decision to do this needs to be weighted according to the work coming in and your ability to produce it, as well as the budget allocated to have work done.

4. Lack of HR, People Management

Many small companies underestimate the importance of setting a high standard when it comes to the way in which the workforce is managed. Rolling out professional guidelines, which staff can refer to as they need to, is of utmost importance. In turn, properly detailing a work relationship through official paperwork, and following the legal system in terms of labour law practices, could make all the difference when dealing with a lawsuit that could cripple your business.

5. Insurance

Unfortunately, small businesses often refrain from investing in a good legal team and tend to seek advice from friends and family that have a background in finance and business law. Similarly, risk analysis and management is seldom something that businesses factor in. Needless to say, a concerted effort to understand the business’s insurance needs, is seldom made.

Having adequate business insurance can protect you in a number of ways. There is an array of cover options to choose from, depending on the size of your business and the product and services that you sell. Business insurance creates a safety net when unexpected problems arise and may contribute positively to your bottom line, saving you money in the long run. It protects you in the event of damage to your property, theft and legal expenses. It’s worth noting that the cover options available to you may differ between different insurance providers. When searching for the optimal cover, get a few comparative quotes and determine the different business cover options available to you.

Hippo2Starting a new business requires financial investment, good planning, and a lot of blood sweat and tears – otherwise known as hard work. It only stands to reason that you need to ensure that your new venture, in which you have invested so heavily, will be as safe and secure as possible.

There are certain business expenses that will always be determined by the size of your business as well as the industry you’re in. The human capital you invest in, in terms of the size of your staff, as well as the expertise that you have on board, can come at a hefty price. Depending on the amount of business you anticipate coming in, you can then make an executive decision as to how many people you need in order to deliver work on a timely basis, as well as work out the amount of money you can allocate towards recruitment. The same is true of the running costs of a business (business operations) which may include telephone, energy, stationery, internet usage and rent. These expenses will also be determined by the size of your staff as well as the type of business and industry you work in.

Starting up your own business can be a daunting undertaking, but your chances of success are greater if you do the necessary research and planning. Understanding trends in the market, and the workings of the economy, can save you much heartache later. Having the necessary legislative and financial insights into business operations are also very important. The first five years are the hardest but with perserverance and determination, you can make it through. Remember to keep your eye on the prize!


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Maya Fisher-French author of Money Questions Answered

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