Majority of small business owners launch their businesses from the comfort of their home, and usually start out as solopreneurs; that means they do everything from product development, to sales, accounting, and so on. This usually works for a while ONLY if a few expenses aren’t factored into the fixed costs. Below are three of those forgotten expenses which usually come back to haunt business owners once they start expanding their businesses.
Before launching your business, it’s always important to draw out monthly expenses and factor them into your Fixed costs. There is always a big temptation to remove salaries from the fixed costs simply because, the business owner is usually the only employee and can find other means to “survive”. The danger with this is, once your business starts expanding and you hire people to help you, your income which usually doesn’t account for salaries, suddenly has to do so. This sometimes causes businesses which were once “profitable” to suddenly drop to the break-even point month after month, and in some cases make losses.
Another commonly forgotten expense is transportation. This usually occurs when the business owner has a vehicle which the business uses for its activities free of charge! Just like the salary example, this can come back to haunt you especially if you need another vehicle to keep up with demand. It’s very important right from the get go to know how much, buying or renting a vehicle would cost; and factoring that into your fixed costs. This way, when expanding the business, its easier to determine whether the income from the business is enough for it to purchase or rent a new vehicle.
For a business owner working from home, rent is last thing on their mind for the business. But it shouldn’t be; you must always calculate the monetary value of the space you are occupying, be it in your bedroom or garage and factor that into your fixed costs. When you have to leave your home and rent a space outside, because you are accustomed to paying a certain fee (to yourself as rent) then you should be able to sustain payments to another similarly priced location.
In conclusion, any expense should be covered by the business and not YOU. If your business cannot afford to pay it’s own rent, transport its goods or pay your salary, then its not a viable business and probably won’t survive. You need to make it a habit to put aside money for (Rent, Transport and Salary) even if you are not using it. This enables you to keep a steady cash flow even after your business starts to grow.