Start-up Hidden Costs

5 hidden costs of entrepreneurship

Entrepreneur's MoneyThe lure of running your own business and not having to work for someone else is very tempting for most ambitious individuals. This is especially true if you feel exploited at your job or feel that it is preventing you from reaching your full potential. Having  control of your business activities gives you the freedom to reap the rewards of your hard work. You can take responsibility for the decisions that are made and their outcomes. There are many costs that are associated with starting a business that can be anticipated beforhand but there are also a few hidden costs that usually tend to become obvious after you have started operating. These costs are not limited to money but also affect resources and time.

1. Administrative costs

Besides your core business functions there are several administrative tasks that you will have to perform as an entrepreneur. Be prepared to either take up these responsibilities, which will be time consuming, or to hire someone to handle it for you. Simple tasks such as billing customers, listening to their feedback and making calls to acquire leads can add up to hours a day or require you to pay a salary. This can be especially frustrating for an entrepreneur trying to focus on improving core business functions.

2. Opportunity costs

Entrepreneurs are known for their ambition and enthusiasm but you will soon realize that you cannot do it all, or at least cannot do it all alone. Sacrifices have to be made and tough decisions will have to be taken. This is where you have to consider opportunity costs or the cost of choosing an alternative course of action. You may want to raise prices but the number of customers you will attract will decrease. If this decrease will reduce profitability then  the cost of changing the price is higher than the cost of keeping it the same. Analysing opportunity can help you make wiser business decisions.

3. Contingency Costs

While we hope that unfortunate events do not occur we have little control over them. The most we can do is prepare for them. Contingency costs include the cost of this preparation but also the emergency costs that creep in when something unexpectedly goes wrong. If an important piece of equipment  breaks down it may need to be replaced as soon as possible. Documents may need to be backed up requiring you to purchase additional storage solely for that purpose. In the Caribbean where there is an annual hurricane season an upcoming storm can incur costs even if a major hurricane does not hit.

4. Family life costs

Starting up your own business requires a lot of work and dedication and this can definitely affect your family life. Before the time comes that you can take vacation whenever you want you will most likely have to work long hours and on days you normally would not have to in a regular job. Days off can quickly transform into days of work. It is important for an entrepreneur to consider relationships with family and make responsible decisions. Communication is critical in these circumstances as family responsibilities and work duties can often conflict.

5. Financial costs

This may seem like an obvious cost since everyone knows that investment is necessary to start up a business. The financial costs you need to be aware of are not  just the initial investments though. The financial burdens that occur when the business does not do as well as you anticipated or when you do not separate business and personal funds are pitfalls that every entrepreneur should be aware of. A passionate entrepreneur will undoubtedly be tempted to invest personal funds in the start-up but garnishing your savings to fund a failing business is a risky undertaking. At some point, if the business does not start generating a profit you need to find a sustainable form of investment or it may be time to call it quits.

These hidden costs are in no way intended to discourage entrepreneurship. In fact, being aware of them before they affect you can help you develop a stronger business and be prepared for some of the challenges that may be in store. I encourage anyone who wants to start a business to work on a business plan and pursue those dreams if they are plausible.

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