This is a guest post from Amanda Cameron. Amanda is a content writer for Patriot Software, LLC.


Do you know what it really costs to keep your business going? Figuring out how to increase your profits can be tough when there are new costs around every corner. Typical small business expenses include inventory, supplies, and other ongoing costs of a business that go directly into your products or services. But, some business costs are hard to notice. You need to know the hidden costs of running a small business.


Hidden costs of running a small business

Consider all your business expenses—even the less-obvious ones. Here are 10 examples of business expenses you might miss.

#1. Insurance

As you build your business, you need to protect it. Insurance shields you from financial and legal troubles. At the very least, you should get liability coverage. A liability insurance policy protects your business from losses if someone sues you.

Beyond minimum coverage, you can add different types of business insurance to safeguard your company. For example, you might want property, commercial auto, or home-based business insurance. Talk to an insurance agent that specializes in small businesses to learn your options. Depending on your structure and industry, you might be required or encouraged to hold certain policies.


#2. Permits and licenses

On top of insurance, your business will likely need permits and licenses. Most businesses must have a business license with the state they operate in. You need to check with your state for specific requirements. Your business might also need a permit to run in its locality.

Some industries and government agencies expect business owners to have additional permits. For example, if you put a sign in front of your building, you need a sign permit. Keep in mind that most permits and licenses have an initial cost plus renewal fees.


#3. Equipment and maintenance

Whether you own a mom-and-pop bait shop in a tiny beach town or a dental office in NYC, chances are you need equipment. Whatever it takes to get the job done, know how much your equipment and tools cost.

As your business grows, account for the additional equipment you will buy. As profits roll in, you might want to upgrade equipment to make operations more efficient. Or, you could add products or services to your offerings, requiring more equipment. Equipment will also cost you in maintenance as it ages.


#4. Professional fees

When it comes to business, tools come in many forms, like professional services. The fact is, you are not a specialist in every aspect of running a business. Experts can help you succeed in the less familiar areas.

If you are sued by a customer, you get legal help. Don’t understand your financial books? You need advice from an accountant. The list goes on of experts that can guide you through business ownership. Professional fees can get expensive, but they are crucial to your business.


#5. Taxes

You might not be a tax professional. But, being your own boss means handling your taxes. If your business is not incorporated and makes over $400 annually, you must pay self-employment tax. This tax is made up of Social Security and Medicare taxes, and adds up to 15.3% of your income.

As a small business owner, you will pay federal income tax, as well as state and local income taxes (if applicable). Depending on the kind of business you operate, you could have more tax liabilities. Stay up-to-date with tax rates and deadlines for your small business.


#6. Payment delays

Payment delays aren’t a direct expense where you give someone money in return for a good or service. But, they do cost you. Cash flow depends on customers sending timely payments. When customers are slow to pay, your business loses money.

Avoid late payments by fine-tuning your invoice payment terms and conditions and following up with late-paying customers. Don’t assume all your collection efforts will lead to on-time payments. Give yourself a little cash cushion to manage payment delays.


#7. Employees

The more your consumers demand from your business, the more your business demands from you. At some point, you might need extra hands helping you with daily operations. But, a competent workforce can be costly.

There are many hidden costs of running a business when you add payroll to the mix. Employee expenses include taxes, training costs, and benefits, in addition to regular wages. If you aren’t trained on the hiring process steps, you could end up losing a lot of time and money before you even add an employee to your payroll.


#8. Credit card fees

Today, the cash-only business is fading. Accepting credit cards allows customers to make bigger purchases more frequently and conveniently. But, you must deal with the typical business costs of offering this payment option.

You need a merchant account through your bank to accept credit cards. You must also lease or buy credit card processing equipment. And, each time you run a credit card transaction, the processing company charges a fee.


#9. Shrinkage

While some expenses, like credit card fees, help you turn a profit, others are just inevitable. Inventory gets damaged, lost, or stolen. Ingredients spoil. Accidents happen. When inventory is lost between the supplier and the consumer, it’s called shrinkage. If you sell products, you should account for this hidden cost of running a business.

For example, if you own a home goods store and order 50 glass vases, you expect to make money from all of them. But in business, and in life, things don’t always go as expected. For example, when you’re setting up a storefront display, you break a vase. Now, it’s only possible to make money from 49 vases, even though you paid for 50.


#10. Time

Whether you consider it a perk or a burden, there is always something to do as a small business owner. Your time is valuable. But, spending too much time on tasks that don’t generate revenue is a dangerous hidden cost of running a business. Make a comprehensive list of all the things you need to do. Then, prioritize the list to see which tasks you should devote the most time to.

Recap of the unexpected costs of running a small business

Whether you are starting or growing a company, keep unexpected costs associated with running a business in mind as you plan your budget. As a quick reminder, here are the 10 hidden costs of running a business listed above:

  • Insurance
  • Permits and licenses
  • Equipment and maintenance
  • Professional fees
  • Taxes
  • Payment delays
  • Employees
  • Credit card fees
  • Shrinkage
  • Time

There are always strategies you can use to reduce business expenses. Shop around for the best policies, payment terms, and rates. Review your expenses often to see places where you could save and which purchases are costing you the most. And, talk to a financial professional for advice on unexpected business costs.


Amanda Cameron


Amanda Cameron is a content writer for Patriot Software, LLC, a provider of fast, simple, and affordable accounting and payroll software. At Patriot, Amanda explains difficult payroll and accounting topics to help small business owners grow their companies.