Every founder makes a budget. The easy things are well known: the cost of payroll, rent, inventory, software subscriptions, and so on.
This can all be put into a spreadsheet easily enough. It’s the things that cost money outside of this list that end up biting.
If you’re running a business right now that is scaling or planning to scale, then this can be a really valuable read.
I’ve watched so many founders get caught out by unexpected business costs.
Not the big obvious ones, but the ones that are hiding just outside of your spreadsheet that are eating into your margin without you even realizing.
The Real Price of “Just One More Hire”
New employees cost more than just their salary.
With payroll taxes, benefits required by law, equipment and software that the company needs to purchase, and the time that other employees take to get the new hire up to speed as quickly as possible to start producing value for the company as fast as possible, the real cost of hiring a new employee can be 25% to 40% or more above their base salary.
These additional costs can add up to thousands of dollars by the end of the first quarter. This is an easy cost to underestimate.
This cost can be modeled out in advance.
I see so many founders build out a full cost model before extending an offer.
They factor in the costs of the worker’s payroll taxes, benefits, equipment (e.g., laptops, cell phones), as well as the time that current employees will take to onboard the new hire.
This onboarding period, where the new hire is producing less than fully for the company, is often referred to as “onboarding drag” and can last anywhere from a few weeks to a few months.
All of this can add 25% to 40% to the new hire’s salary in the first quarter.
Software Sprawl Adds Up Fast
Most teams get tools, like batteries in a junk drawer. Individual subscriptions here and there, like project management, analytics, or a design tool that was used for a project, but then nobody canceled the subscription.
Often, these subscriptions cost together 5 figures a year and have no value to the team.
Perform a subscription audit every quarter to trim tools not bringing value to your organization.
It only takes a few minutes to cancel subscriptions (this does not include the time spent figuring out how to remove users and settings from each application; hopefully that is already organized).
Vehicles and Logistics Costs Nobody Plans For
By adding field staff or operating as a service company that handles deliveries, you incur the cost of putting a vehicle on the road.
A single van, or even a small fleet of vehicles, quickly becomes a considerable ongoing expense to your business. It’s not just the purchase price of the vehicle.
Even after it’s been paid off, there’s the cost of maintenance, fuel, and insurance to consider.
But of these, insurance, or more specifically, coverage, is the biggest blind spot. This is because many founders incorrectly assume that their personal auto policy will cover them when driving a company vehicle. It won’t.
This is a costly error that only reveals itself after the fact.
Coverage is often an afterthought until it is too late.
And, until recently, many business owners have assumed that their personal auto insurance would extend to their company vehicle(s). This is not the case and can lead to very costly mistakes.
It’s worth taking a few minutes to compare different auto insurance quotes before purchasing a policy for a company vehicle.
It’s particularly worth comparing rates across different levels of coverage and choosing the best policy for the vehicle’s intended use.
For example, if a company vehicle is used for deliveries throughout the day, the company may want a higher coverage limit for accidents that occur while the vehicle is being used for work than if the vehicle were used only occasionally for business.
The Cost of Slow Decisions
This cost is invisible – it doesn’t appear on your balance sheet, but it’s just as real as any other.
By delaying a decision (no matter how big or small) by one week, you are losing momentum. And, to be honest, losing money.
Yes, every week that you spend deliberating over decisions that don’t really require more than a few days of deliberation (e.g., hiring, pricing changes, new contracts with vendors) will cost you.
Set a deadline for yourself for making such decisions to make sure you don’t lose too much money.
Decide on a timeframe for each decision; if it is very important, more time may be required.
However, for many decisions, there are only a few very important factors.
Therefore, a decision can be made within a few days rather than weeks or even months, over what are usually very minor factors that have been blown out of proportion.
Customer Support That Scales Ahead of Demand
Support processes for founders are often written for the business’s current state and therefore do not scale with the business over time.
The consequences of slow Support for growth businesses are severe: lost business due to slow responses and erosion of customer trust, potentially with catastrophic results in the long run.
For smaller businesses or startups, the cost of Support can quickly scale up and eat into profits before they realize the damage being done.
But this can be prevented by building the support systems for your business before they are actually needed.
This can include setting up a simple help center on your website, agreeing on targets for answering calls, setting up email or online chat systems, and planning for when you will need to employ extra staff to handle the increased workload.
Insurance and Liability Gaps
And on top of the costs of vehicles for field staff, most business owners do not realize that their personal insurance package does not extend to their company vehicles.
This is a big and often costly oversight until it is too late.
I have seen business owners spend a huge amount of money to cover accident costs while their business was operating under an under-informed and under-insured personal insurance package.
Annual policy reviews aren’t exciting. But they are cheap compared to the costs of being underinsured.
Building a Buffer for the Unknown
These expenses are hard to predict when they will occur, but they are very predictable in that they will exist.
A small buffer of funds for those costs that you can’t predict, for which you are preparing to handle the inevitable unexpected hiring gaps, a time-consuming software cleanup, a car breakdown, or an insurance review, will go a long way in your company’s financial well-being.
Growth is exciting; it’s also the time when your budget is really put to the test, late at night when your eyes are tired and the numbers just aren’t adding up yet.
It is in these moments that successful businesses have a financial cushion to absorb the unexpected expense.
So, for your own company, take an hour to go through your budget and figure out how each of these unexpected expenses will fit in.
Then, you can grow your company and deal with unexpected expenses without losing your mind and burning through your bank account.
