Top Ways People Use Small Business Loans
Friday, January 22, 2016
Well done on securing your small business loan! Your next challenge is to spend it wisely and to make every penny count. To do that, you need to understand what costs you may be in for, to budget wisely, and to stay within that budget.
No matter how exciting your business plans are, it could all collapse if you underestimate your expenses. Of course, every business is different. Nonetheless, here are some of the expenses you can expect to come your way.
People: People are your biggest asset, but they can also be one of your biggest expenses. In addition to their salaries, commissions and incentives, there are several other expenses to be aware of, such as sick leave, holiday leave, workers’ compensation insurance, payroll tax and superannuation. Recruiting and training also cost money, so it pays to look after your good people.
Place of business: Unless you are operating a home business or own a commercial property, you will need a place from which to do business and will have to pay rent. Under the lease agreement, you may also be expected to pay some rent in advance and a bond.
Fixtures, fittings and furnishings: If you are starting in new premises, you may need to fork out for things like carpets, office furniture, partitions, panels, signs, storage cabinets, lighting, security systems, shelves and whatever is needed to display your wares. You may also have to incur insulation, electrical wiring and plumbing costs to get your business set up.
Stock and equipment: If your business involves selling a product, you will need to invest in some stock and to manage this well so that you don’t have the additional expenses associated with having too much stock collecting dust or missing sales by running out. You will also have to purchase, hire or lease any other equipment needed to conduct your business. And don’t forget the shipping and delivery costs involved in getting stock or equipment to you.
Working capital: To manage your business smoothly, you will need cash to fund the normal, day-to-day operations of your business and to ensure you have enough cash to pay your debts and expenses as they fall due, while you are waiting for your customers to pay you.
Technology: You can’t run a modern business without computers, a telephone system, printer and photocopier, so ensure you budget for them. And then you may also require a range of software to keep your business running efficiently.
Utilities and services: Expect each month to receive bills for council services, electricity, water, gas, internet and phone.
Marketing: You are likely to have to promote your business and ensure you stand out from the pack. Your costs here could include market research, advertising, trade shows, newsletters, special events, brochures, public relations, digital marketing and social media strategy. Unless you have the skills yourself, you may also need to hire someone to create your website in the first place.
Insurance: This may include insuring your company, your income and your commercial risk. Taking out the right insurance will help protect your business and minimise its exposure to risk. There will also be certain types of insurance that are compulsory, such as workers compensation insurance (if you employ people), third party personal injury insurance (for your vehicles) and public liability insurance for certain types of companies.
Professional services: You may be able to get by with accounting software, but you may also require the services of a bookkeeper or accountant, especially for tax purposes. You may also have to incur legal costs – for example, you may have to draw up contracts with customers or suppliers, or you may want to protect your intellectual property through patents, trademarks or copyrights. You may also need to consult experts in your field and get advice so that you grow your business efficiently.
Registration and licensing: Find out what registrations and licences apply to your business. For example, you will need to register your business name, company, domain name or trademark. And if you’re selling food, you may need a food business licence. There may be other licenses that aren't so obvious and these can also vary from state to territory. The Australian Business Licence and Information Service (ABLIS) website may assist you in finding out what you need.
Vehicle: Depending on your type of business, you may need one or more vehicles. Remember to budget for all the costs associated with this, including fuel, maintenance and insurance.
Supplies: From tea, coffee and milk to stamps, stationery, printing paper or ink cartridges, your business is likely to require regular supplies that need to be budgeted for.
Networking: You may have to get out and about to meet the right people to get your business moving. This could range from taking someone out for lunch to joining an industry association and attending industry events in order to meet the right people, and it all comes at a cost.
Loan repayments: How much do you have to repay each month on your business and other loans?
Taxes: Nothing is certain except for death and taxes, so ensure you know what you are in for.
Emergencies: It is important to plan for the unexpected. Have an emergency fund available for when things go wrong – because they will – and for all the costs you haven’t thought of. Also, things do break down or age, so it’s worthwhile having a reserve fund to pay for repairs and maintenance.
When estimating these costs, be on the side of caution. Estimate high. There is nothing worse than running out of money - underestimating your costs can end up crippling your business!