Hidden costs that can eat up your small business profit

If you’re running a small business, chances are, you’re on a tight budget as it is.

Keeping track of all your business expenses is a key tactic in allocating your funds correctly and managing your finances successfully.

The life of an entrepreneur is hectic at best. Many small business owners get caught up in the process of managing everything on their own so they lose track of their spending or make poor decisions money-wise.

For example, they invest in tools they don’t need which end up eating a decent percent of their profits, or they fail to do proper research and use expensive services when others, more affordable and suitable for their business, are available.

The hidden costs are a true threat to every small business and can impede your progress significantly.

In this post, we talk about hidden costs that can eat up your small business profit and how you can avoid that.

Payment processing fees

Businesses must offer various payment options to stay competitive. However, payment processing fees can add up if you’re not careful.

Depending on the payment processing provider you choose for your small business, you could pay significant transaction fees and/or monthly fees.

On top of the setup cost, there are various other fees related to card processing systems. Credit card transaction charges usually vary between 1% and 3%. There are also transaction authorization fees and merchant service charges.

Payment processing fees vary depending on several things such as the payment method, payment network, as well as the type of card.

Transaction fees also apply to online payment providers such as PayPal.

For high-risk transactions, payment processing fees are typically higher.

To stay on top of the payment processing fees and avoid hidden fees, you should do proper research before choosing a payment provider. Consider your priorities as well as your average monthly sales when choosing a payment processing service.

Compare merchant services and pick the least expensive one so you don’t end up spending a good chunk of your profit on fees. See Cardswitcher for more on price comparison and find the best, most affordable solution for your business.

Equipment maintenance

The cost of purchasing equipment for your business is hardly a hidden cost, however, the cost of maintaining it can often slip by and surprise you.

Upgrades, repairs, and maintenance are probably not in your small business budget plan. What you might fail to grasp is that fixing old equipment might be even costlier than simply replacing it with a new model.

Getting upgrades that you don’t really need can also eat up your profit.

To avoid this, you should plan a budget for equipment maintenance and keep in mind that certain pieces of equipment such as computers should be replaced every few years. You can shop around for second-hand equipment in good condition and save money.

You might also be duped into purchasing tools or softwares that you don’t really need and end up paying monthly or yearly fees that could be put to a better use.

Stay alert to this and consider each purchasing decision thoroughly before spending your money.

Permits and Licenses

Depending on the small business you’re starting, you need different permits and business licenses. These often need to be renewed and include annual fees.

Add permits and licenses to your yearly budget and make sure that you don’t pay for any permits that you don’t actually need. Also, if you’re paying any membership fees with your local community organizations, consider whether you actually have any use for that.

Delayed payments

Getting paid on time is crucial for your small business. However, as in any business, payments can often be late due to holidays or the bank withholding your transaction for whatever reason.

This can cause various issues since you, on the other hand, cannot be late with your due payments.

Rent, insurance, utilities, taxes, and other related fees must be paid on time to avoid problems. Cash flow issues may force you to pay some bills while leaving others for later.

As a result, you might face interest rates and end up paying more than you need.

To prevent his, you need to create payment rules for your customers and perhaps, include a late payment fee.

Office space and supplies

When you planned on starting your small business, you probably envisioned a dedicated office space with a nice location.

This can create a sizable dent in your budget since with rent come the utilities and commute expenses. Utility bills can sneak up on you especially if you didn’t compare business electricity costs to choose the best deal.

This means a decent part of your profit will be allocated to these costs every month.

While it does sound lovely to have proper office space, you might not actually need to rent it, at least not in the beginning. Many businesses are operated from home these days and this can save you a decent amount of money.

If you can’t operate your small business from home, consider using shared office spaces that often include free internet access as well as some equipment.