Starting a home business is exciting because you don’t have to commute five days a week and you’re your own boss. However, a lot of extra responsibility comes with being a home-based business owner as well. No one is there to fire you if you make too many mistakes or show up to work late, yet these problems can break your business. Many home-based business owners experience financial problems when they start their first business. The five expenses below are sometimes overlooked by home business owners, which can cause financial trouble:
1. Permits and Licenses
Permits and licenses seem like an obvious expense for home business owners, but some people still unknowingly start a home-based business without the necessary permit or license. This can get them into legal troubles. Permits and licenses need to be renewed as well, which sometimes costs money. A home-based business owner should know when their license needs renewal and what the necessary steps for renewal are. If you need to take a test again to renew the license, then it’s worth setting time aside a few months in advance of the renewal date to refresh your mind.
2. Equipment and Supplies
Another expense often overlooked by home business owners is equipment. They may remember to factor in the most obvious equipment they use for business, such as a saw for cutting wood or pliers for making jewelry. But home business owners tend to forget to factor in the less obvious equipment when calculating and tracking expenses. Examples of missed supplies are paper, stamps, and computers. In today’s world, a computer is usually a necessity for a home-based business.
3. Shrinkage
An expense that usually takes new home business owners by surprise is shrinkage. Shrinkage is the loss of inventory at some point in between traveling from the supplier to the customer. Many people forget to factor in the potential costs of shrinkage, which DOES happen in business. Some think it wouldn’t happen to them, but if you’re in business long enough, it will. Thus, you should be prepared for shrinkage to occasionally happen to avoid being unpleasantly surprised. Fortune magazine reported that U.S. retailers lost approximately $32 billion in 2014 due to shrinkage. Possible causes of shrinkage include theft, short shipments from a vendor, damage during shipping, and picking errors that give customers more than they ordered.
4. Insurance
There are different types of insurance you may have to consider as a home-based business owner. For one, because you’re not employed, you’re responsible for your own health insurance. If you use a car to travel for business, including driving to the post office, then that’s another expense to consider. You’ll want to check your auto insurance policy to know whether or not it covers damage that occurs when the car is used for business. Oftentimes, a home business owner has to buy business auto insurance. With some searching, you can find low-cost car insurance for business purposes. Never go without this type of insurance.
5. Time
Although time isn’t a physical good thing that you buy for your business, it is important to ask yourself what your time is worth. How much money you want to ultimately earn will give you an idea of how much each work hour is worth. If you get distracted during the workday by social media, friends, family, or other tasks, you have just added expenses to your business because you have subtracted time from your business. You must set boundaries and stay focused on work during work hours. As a home-based business owner, you don’t have an employer to keep you in check. You are in charge of your own discipline.
By being aware of the five overlooked expenses in home-based businesses listed above, you can plan more wisely for your venture. You also won’t be caught off guard if you have unexpected costs caused by shrinkage, license renewal, or legal fees. Before you start a home business, check local and state laws to find out if you need a permit or license. Also research what kind of insurance you should have to protect yourself and your business. Remember the five commonly overlooked expenses listed above while handling finances.
