The Hidden Costs of Running a Business

When most people think of starting a business, they think about the revenue potential, the ability to be their own boss, and make their own decisions, that leads directly to how much money they’ll take home. What seems to take up a lot less bandwidth is what it will actually cost.

That gap is where a lot of new business owners get caught off guard. Not because they make bad decisions, but because nobody ever sat down with them and said “here’s what running a business actually costs”, beyond the obvious stuff.

Hopefully this can fill that conversation gap.

The first expense that adds up way faster than you think is for software and subscriptions. Think accounting software, scheduling tools, email marketing platforms, a website, cloud storage, and design tools that are all only maybe $10 to $30 a month. However, if we use 4 or 5 of these, that now becomes a real expense that we need to consider and cover. My suggestion is to take advantage of free trials, keep track of all your subscriptions, and do a quick monthly audit of every subscription you have to make sure you’re not only actually using them, but getting value out of it.

The second expense is taxes, which for many small business owners is an after-thought that can be dealt with at tax time. However, please please please, as your friendly neighbourhood accountant, do not do that. For every client, every service, every product you sell, set aside an amount (my suggestion is between 30% to 40%) that you don’t get to touch. Put it in a high interest saving account, that is separate from your everyday account, and let it sit there gaining interest waiting for tax time. Now your money is not only working for you, but you also won’t get as big of a sticker shock come tax time. And, if you end up owing less than expected, that’s a beautiful surprise that can be used to reinvest in the business, or spoil yourself just a little bit.

The third expense is insurance, which depending on your industry can include liability insurance, professional indemnity insurance, contents insurance, or all three. It’s easy to skip out on this when you’re starting out and money is tight, but it’s there to protect you if something was to go wrong, like all types of insurance.

Fourth, we have learning and development, which can include courses, books, conferences, and coaching. Investing in yourself is one of the best things you can do for your business. It doesn’t always have to cost money, especially when you’re just starting out and feel like you need to learn everything at once. My personal favourite is Coursera which has a catalog of probably thousands of courses that range in length from hours to months, depending on what you feel like committing to. Local small business associations often put on free sessions as well, which has personally been extremely helpful. If you’re local to Ottawa, I definitely suggest looking into Invest Ottawa and their free sessions.

Next, we have equipment and maintenance, think your laptop, phone, camera, tools, anything you need to do your work. Unfortunately, these need to be replaced or repaired at some point in time and for some reason, always seem to hit all at once. Building a small buffer into your monthly budget for a replacement sinking fund means you’re less likely to panic if something breaks down.

Finally, we have you. Your time, your energy, and everything that comes with keeping your business afloat when you are not delivering your core product. Think admin, marketing, emails, bookkeeping, and all the other fun stuff that means you aren’t focusing on paid work. Your time has value and factoring that into your costs changes how you think about what’s worth the DIY time versus delegating.

Overall, I would suggest adding a 15% to 20% buffer on top of your monthly budget, because there are almost always a few things that pop up that you didn’t think of.

Now, here’s why this matters for your pricing. If you don’t know what it costs to run your business, you can’t price your work properly. A lot of new business owners price themselves based on what feels fair or what others charge, without second thought about if those prices actually cover everything and leave a little but for themselves.

Once you know your real costs, pricing becomes a lot less guesswork, and a lot more math, which is a much more comfortable place to be. Knowing your costs isn’t scary, its empowering. You can’t make good decisions without this information, and now you have an easy way to get it at your disposal.

If you want help figuring out what your business actually costs to run or whether your pricing covers it, let’s talk! Book a free Clarity Call at www.korporateconsultingservices.com.