Starting a business excites most entrepreneurs, but creating a business plan with an accurate budget isn’t always easy.
A good rule is to compute the first-year budget accurately and add another 20 percent to this amount.
The extra funds will cover unexpected costs that may come up as you trade. Don’t forget to include the following most forgotten startup expenses in the budget.
1. Employee Churn and Onboarding New Hires
A stable workforce can save you money. A study by Employee Benefit News shows that if a worker leaves, it costs the employer 33 percent of that worker’s salary to recruit a new employee.
The costs associated with employee turnover include:
While searching for new hires, companies may incur charges when posting job listings, hiring recruiters, sponsoring events, developing partnerships, and offering referral bonuses.
Background checks, travel costs, and assessment tests associated with vetting applicants can also raise the budget. It takes approximately 42 days for organizations to fill an open position.
During that period, executives dedicate a lot of time and resources to search for new hires. The HR department takes time to interview, screen, and recruit candidates.
Extra roles for remaining workers
Before hiring a new worker, other employees will need to cover the open position, which diverts them from their usual work or requires overtime. Typically, when a company is short-staffed, some work will remain undone.
Taking on extra work and longer hours may cause job dissatisfaction and dampen employee morale. Low morale can lead to low productivity, which can hit the company’s top line.
Costs for training and onboarding
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Once someone takes up a new position in a company, orientation and training have to follow. Employee onboarding involves orientation, ramp-up time, and training, and it can take a couple of months.
To be at par with the worker they’re replacing, new employees need to undergo rigorous training. Thus, part of the onboarding process includes getting assistance from colleagues.
And that assistance comes with an opportunity cost: every minute a worker spends to train a new hire is a minute not used to do their job.
Thus, it’s imperative to come up with reliable employment and HR policies to keep the employees you already have and not hire the wrong people. A better strategy would be to identify the best candidates through four interviews:
- Screening interview – Use a short phone interview to weed out B and C players
- Topgrading interview – Assess the candidate by getting crucial information about their career
- Focused interview – Dig deeper for details on particular outcomes and competencies
- Reference interview – Use reference checks to test the info you learned about a candidate
2. Lack of Business Strategy
Startup owners are mostly young people or engineers with incredible ideas but no strong skills in leadership and strategy. Most of them lack a sound plan that could spur growth for the startup.
Most entrepreneurs adopt the first practical strategy that comes into their minds. This approach works sometimes, but it’s good to avoid it.
Business owners who go with the first promising strategy often expose their startups to competitors who may take one of the least obvious, but effective routes to growth.
The other problem with a lack of a robust strategy is that it repels investors, yet investors often fund most of the software startups. The best way to appeal to these stakeholders is to demonstrate to them that an idea has potential across several strategies.
While startup founders may have the skills for creating and selling a service or product, they often lack reliable management attributes and time to manage the employees effectively. As a result, employees multitask and make errors that can cost the organization money and time.
Without a committed management team, a business owner can mismanage aspects, such as finances, marketing, and hiring.
3. Marketing Mistakes
When entrepreneurs lack a solid strategy, they usually do everything once and spread the marketing budget too thin. Ultimately, they don’t achieve the desired results.
Since marketing is crucial for any startup, business owners need to set realistic budgets for their marketing needs.
Besides, it’s worth focusing on one useful marketing segment that’ll require the business to invest in just one, important marketing channel. The channel to use depends on the model of the company.
4. Unnecessary Spending
Startups usually operate in some of the best offices, and it’s common to find the premises comprising of a well-equipped gym, dining spots, pool tables, fast Wi-Fi, parking lot, expensive computers, attractive patios and more.
While it’s important to factor in the growth and acquire most of these facilities, it’s not worth blowing your budget on vanity things—at least not in the beginning.
It’s still possible to have quality tech equipment, but save money. For example, custom websites take time to build, and sustaining them is expensive. So, you may want to save time and money by considering a responsive and functional website that will improve your company’s online visibility.
It’s possible to save on equipment as well. Instead of buying a Mac computer for every employee, you could still upgrade and optimize older tech for use. For instance, if you’re using a Windows computer and you notice it’s too slow, you may want to speed it up and save the money for buying a new one.
The other unnecessary expenses may include legal and administrative fees, subscriptions to apps that you rarely use, insurance premiums, food costs, trade shows, needless office space (with high rent), energy-wasting technology, and so on.
Evaluate all these expenses and consider switching to alternatives or ditching them altogether.
Early-stage businesses lose a lot of money in different ways. Start assessing every aspect of your business for hidden expenses so you can eliminate or cut down on them. You’ll save quite a lot and use it to grow your organization.