6 Hidden Costs of Starting a Home Business

Starting a home business almost always involves more costs than you would think. It’s way better to be aware of what they are and plan accordingly, instead of burying your head in the sand. You’ll be able to budget effectively and you’ll also be aware of hidden costs.

Afterall, you need to position your business for long-term growth and success, not just a fabulous launch. When starting a home business, something that commonly leads to the failure of small businesses is underestimating costs and expenses. This mistake creates unrealistic expectations regarding profit, meaning that your new business may erode or totally destroy any capital on hand.

It’s a wise idea to get your head around these 6 hidden costs to ensure the long term success of your new  business. 

Setting up a Home Office

You will definitely save on rent and utilities if you work from home. This is a huge pro as these costs are usually a significant percentage of monthly fixed costs for small businesses. All you need is a dedicated, quiet area in your home and basic equipment: desk, chair, computer, and phone.

You can always add items further down the track to increase your productivity or to create a more professional environment. Always keep in mind that your home office makes a statement to your clients about you and your business. For example, you may want bookshelves, a table, and chairs for meetings, filing cabinets, tea, and coffee-making equipment, etc.  

However, if clients regularly visit or you stock products you need to consider a larger separate work-space. If you choose to stay at home you may need to pay for renovations. A great way to fund renovations and kill two birds with one stone is to refinance. Interestingly, one of the most common reasons people refinance is to renovate. It can both fund your expansion and result in lower monthly loan repayments.

The Rise of Utilities

You included utilities in your budget, but did you build in the fact that the cost of electric, gas, phone, internet, and even water will rise as your business grows and its consumption levels increase accordingly? 

In addition, you may require further items that use power such as an HVAC unit for a multi-person office or a commercial fridge for an at-home catering business. Purchase and installation are one-off costs, but there will be ongoing maintenance expenses. While not strictly utilities, there are other office supplies, such as paper and ink cartridges for your printer  that you need to cost and budget for as they add up over a year. 

Marketing Strategy

Your business may be the next best thing, but if you don’t promote it, people may never know. This may bring to mind pamphlets, business cards, signs and other physical marketing tools. While these can be great tools, we are in an age of marketing, and no business can truly succeed without a great marketing strategy.

It’s essential to attract clients and it can be very tempting – and easy – to hire the services of an external company to create videos, advertisements, and other creative projects. While this will be exciting and may be effective in the longer term, costs can run away with you all too easily.

We recommend that you keep your marketing minimal and your costs under control when you start out by strategically using social media channels and building your website to optimize keywords and SEO. Websites such as WIX are very user friendly and allow you to build professional websites that meet marketing goals. Educate yourself off YouTube and Google. Online marketing is evolving rapidly, so don’t be afraid to self-educate and upskill as an online marketer

The Necessary Evil

Yep… I mean tax time. Unless you’re an accountant, it can be hard to pick the right figures to use. You can’t build a  percentage into your budget because you can’t accurately determine revenue or deductible expenses in advance. Our advice is to consult an accountant who will be able to advise you and explain the situation with regard to self-employment taxes. You will save big time by investing in a qualified accountant. If you mess up your taxes, a lengthy investigation by Inland Revenue may send your business under.

Safe & Sound

No matter how well you plan, the unexpected can happen and things can go wrong. The way to protect yourself is by buying protection in the form of insurance. There are several types of small business insurance. However, you won’t need all of them initially. Again, get some professional advice about the type and level of cover you need given your specific business (risks, premises, employees, etc.) and industry. Keep in mind your insurance needs may change over time and that insurance costs are variable. 

The insurance cost

Once you know what insurance your new business requires, you need to shop around. Go online and compare insurance and quotes in order to identify appropriate cover at competitive rates. Armed with this information you can take out the insurance you need when you need it. With confirmed costs you can build this into your planning, remembering to make allowances for inevitable rate increases and additional insurance at a later stage.

You have your business and your home. Now you need to establish office space in your home and plan for the costs that will come with this such as increased and additional utility costs. Don’t get carried away and only select the marketing strategy and tools you need at the time. While you can’t avoid taxes and need insurance, professional guidance and shopping around will help you plan for and cover these expenses.