How to Prepare Your Business for Unexpected Costs
Many business owners would agree that running a business is hard work, and it becomes even more challenging when unexpected costs arise. Regardless of your industry or the type of business you run, the unexpected can come at any time. Whether it’s a plumbing problem, replacing broken down equipment or dealing with other major emergencies, if you’re not prepared for it, it can leave your business in a financial bind.
Whether you’re a start-up or a more established business, no business is bullet proof. Unexpected costs can and usually do occur. Here are some common unexpected costs that you may find yourself having to deal with.
Due to wear and tear or misuse, equipment such as desktops, vehicles, printers, and other machinery can break down or require regular replacement. For some businesses, equipment is critical to their operations. For example, when a bakery’s baking oven breaks down, it would most likely be impossible for them to continue doing business. If you have equipment that’s critical to your business, make sure you have emergency funds you can tap into or quick capital you can access to keep your business running and minimise any downtime.
Electrical or plumbing problems are not uncommon especially if your office is in an older building. Never underestimate utility issues or the potential damage they can cause. What seems to be a small electrical or plumbing repair can easily cost you a few hundred or even thousands of dollars.
Today, reliable internet connection is also critical in doing business. Network issues can interrupt business processes and connectivity or significantly reduce productivity. Hiring IT specialists, managing IT services or even simply moving to another Internet Service Provider (ISP) can also cost you a significant amount of money.
There’s nothing more unexpected or potentially devastating than a natural disaster. A hurricane, flood, wildfire or earthquake can destroy the business’ physical assets and may even stop operations for a certain period of time. In this case, you need funds not only to rebuild your business but also to support yourself and your staff if the business stops operating temporarily.
You may have invested an amount of money in a project or asset that didn’t give you the returns you expected. Bad investments can put your business at a financial loss.
But not all unexpected costs are a result of a breakdown
It’s also possible that your business is growing and there are opportunities for expansion. In this situation, you may need to hire and train new staff, ramp up your marketing efforts, or acquire additional office or retail space. While all these are positive steps to take for your thriving business, these will cost you several thousands of dollars.
Preparing for unexpected business costs
How do you prepare when unexpected business costs arise? Apart from getting the appropriate level of insurance for your business, setting aside a “rainy day” fund that you can access in cases of emergencies is a good place to start. But how much should you set aside? In general, most financial experts recommend keeping 3 to 6 months’ worth of operating expenses in reserve, but this may vary from business to business.
Being strategic will help you minimise the risk of unexpected costs and set aside money for your contingency fund. First, ensure all equipment is regularly checked and maintained by professionals. This can help you determine how much maintenance and servicing would cost or if you need to replace the equipment completely. Set aside this projected amount to cover equipment breakdown.
Second, have your electrical, plumbing and HVAC systems inspected. Electricians and plumbers can provide estimates for potential repairs. You may even catch an issue before it becomes worse.
Third, plan what you need to support future business growth. Do you need to hire 1 or 2 additional staff? What training and equipment will they need? Planning ahead and considering the additional costs of onboarding a new employee can help you prepare financially.
Aside from setting aside a rainy day or contingency fund, there are also financing options available for business owners that can give you access to quick capital you can use to cover an unexpected cost. It can be beneficial to consult with a finance broker who can help you finance your business requirements and support your business success.
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Category: Business & Money