For small businesses, unexpected costs can be a real concern. Without a large annual turnover to fall back on, there’s very little money left in the budget for dealing with additional outlay. As a result, it’s not overdramatizing to state that any surprise charges could potentially derail your enterprise and leave you significantly out of pocket.
So how do you safeguard against such unexpected eventualities? The answer lies in being proactive. Once a problem has occurred, it may already be too late for damage limitation, so a forward-thinking approach from the outset is the better option.
What you need to do, essentially, is build a sense of security into your business plan, and there are a number of ways you can accomplish this.
Here are a few of the most effective.
Create a cushion for construction costs
When it comes to spending large sums of money on your business, you’ll find that one of the biggest drains on your budget is construction costs, whether these relate to buying, building, renting, or renovating a suitable space. It’s amazing how many unpleasant surprises that work on your professional premises can turn up. This is why we suggest spending on a savvy building inspector before you make any big decisions.
The reason these costs are often unexpected is that construction problems will not necessarily be visible to the naked eye. Faulty wiring or substandard plumbing, for example, might not immediately present as an issue. But once they begin to cause problems, your outlay is liable to snowball.
As well as relying on professionals you can trust, we’d recommend going further still. Only use insured contractors and make sure you have watertight contracts in place that state who is liable for what. Even more importantly, try to factor an additional 25 percent into your expected outlay costs before you begin. Doing so will make you less likely to struggle if a costly surprise does make an appearance.
Insure yourself against legal costs
Unfortunately for small businesses, you’re also a prime target for lawsuits. Without an in-house legal team or a sufficiently big budget for mounting a strong defense in court, you could very well find yourself in a position where you’re expected to pay out a large sum as remuneration.
Indeed, across the country, such settlements equate to an annual figure of around $35.6 billion, with the amount that companies are expected to pay out often being enough to put small enterprises out of business permanently.
The solution? Make sure you have adequate insurance in place to protect against liability claims. This is easily found from companies like Next Insurance, which specialize in errors and omissions cover.
Providing tailored plans for the self-employed, as well as smaller businesses in general, they can offer financial protection for you and your company should you ever find yourself in court.
Implement an effective inventory management system
One problem that lots of small businesses think they’re immune to is shrinkage. This is often considered to be an issue that’s only faced by larger enterprises, with your staff all being trustworthy and known to you. However, it’s not only your employees who are liable to engage in theft.
In fact, total shrinkage across America’s retailers amounts to almost $35 billion per year, with the majority of this resulting from either issues with suppliers, shoplifting, or mistakes in accounting and paperwork.
Granted, it’s impossible to remove this risk entirely, a simple and usually effective solution is to implement an inventory management system. This should help you to keep track of what’s going on behind the scenes, so you can immediately see if you’re coming up short in any area.
Avoid late payments
It’s not a cost exactly, but being paid late can often force you to dig into your own personal coffers, even though you’d otherwise have sufficient overheads to cover your expenses. That’s why it’s important that you try and deter delayed payments, as these can cause difficulties with paying your own bills and suppliers in a timely manner.
There are a few ways you can achieve this. Firstly, we’d recommend making it clear from the outset that all invoices should be paid within 30 days of receiving them. Secondly, we suggest that you offer incentives for paying sooner, whether these amount to a simple ‘thank you’ note or a small discount on future purchases. Lastly, try to keep communication open, providing gentle prompts to your customers before it gets to the point where a payment is late.
When it comes to protecting against unexpected costs, there are lots of ways you can cover yourself and keep the money flowing. Most require only small changes to your methods and processes and these internal overhauls can reap significant returns. Therefore, it is well worth the effort required to implement them.
Isn’t it time you considered how to safeguard your business?