5 Little-Known Costs That Can Sink Your Startup in a Heartbeat
- July 3, 2017
- 0
- Will Turner

Every month, roughly 543,000 people start a business in the United States, which translates to around 6.5 million new businesses every year. That’s just a fact. And just how many of them actually succeed? Now that’s a little more complicated matter.
According to certain sources – like this often-cited Forbes article – around 80% of businesses fail within the first twelve months. The legitimacy of this information has been disputed since the article was published, and it turns out that, according to Tech.Co, the number is actually much lower.
What are Your Actual Odds?
The numbers vary by the industry, but according to data provided by the US Bureau of Labor Statistics, a new business has a 50/50 shot to make it past the fifth year. Furthermore, only around 33% of startups make it to their tenth year.
While the odds aren’t as nearly as bad as some of you probably thought, the fact of the matter is, starting a company in this day and age is still risky. Nevertheless, it seems like the new generation has a more of an entrepreneurial itch then their predecessors.
In fact, a recent survey from the University of Phoenix revealed that 63% of people in their twenties plan to start a business somewhere down the line in their careers. And of those who aren’t already young entrepreneurs, 55% hope to be in the near future.
What You Need to Know Before You Start?
Ok, you want to start a business. You’ve already know about the basics. You obviously have a product, marketing strategy and a business plan. Now, you just need to plan a budget that will fund the first year of operating costs.
Unfortunately, with a new business, there are always unexpected costs. And these hidden costs can result in a shortage of money at inopportune times. That’s why, you need to identify these potential costs way before you develop your final financial plan.
So before you step a foot in the world of entrepreneurship, there are a couple of things you need to set aside money for…
Five Hidden Startup Costs
1. Various Replacements and Repairs
Let’s start things off with something rather simple. You see, things break down all the time and since you need equipment to operate your business, you’ll have to repair or possibly replace every piece of equipment that breaks down.
And these costs can be sky-high. Don’t believe us? Just take a look at this: only five years ago, US business owners paid up almost 17 billion dollars for various repairs. Moreover, your equipment needs to be kept in good condition, so you need to think about maintenance costs as well.
This is an ongoing process – you’ll need to dedicate a good portion of your budget for maintenance costs if you want to keep your hardware in good condition throughout the year and avoid any repair costs down the line.
2. High Turnover Rates
A satisfied workforce is what every business owner craves. But employee satisfaction has been low in the last couple of years. According to Gallup research, less than 33% of employees in the United States feel satisfied and actively engaged in their workplace.
Bellow, you have just a couple of costs you’ll have to face when an employee – or a couple of them – leave your company:
- Employee Training– if you keep things internal, your managers will need to put in some time and train the new employee and if you hire a 3rd party to do the job, you’ll to spend more.
- Recruiting Costs – you can always post job listings online on a number of sites and social media platforms, but you’ll also waste time interviewing and reviewing applicants.
- Benefit Claims – if a person leaves voluntarily, you don’t have to pay anything, however, if you don’t make an effort to contest his or her claims, your insurance costs will raise.
3. Unexpected Legal Fees
For starters, a number of industries require owners to purchase surety bond insurance, which provide financial guarantees that protect their customers, before they can even be licensed. And while you have companies like JW Surety Bonds, that will do the job for you at low prices, the fees don’t end there.
You never know when you might get sued. And just like data leaks, these things happen often than most of us presume, no matter the size of your company. According to findings from the NFIB, SMBs are actually the biggest victims of lawsuits.
And even bogus lawsuits can cost you a lot. A standard out-of-court settlement will cost your around 5,000 dollars, according to the aforementioned NFIB report. But the time you’ll have to devote to these lawsuits also means you’ll lose a significant amount of time that could’ve been spent on your business.
4. Worker Benefits and Payroll Taxes
If your business grows within the first year, you’ll need to hire more workers. And don’t be fooled, the wage is only a part of the overall costs of hiring new employees. According to MIT, the real costs of employment can be up to 1.4 times the basic pay.
But that’s not all, there are additional costs, which include:
- Compensation – worker’s comp varies from state to state and industry to industry, but it is always pricey.
- Taxes – in addition to your share of Social Security and Medical taxes, you’ll also need to pay federal and state unemployment taxes.
- Benefits – some of the benefits include retirement benefits and health care coverage, among a number of other perks.
5. Administrative Errors and Theft
US companies lose billions of dollars every year due to employee theft, errors, data leaks and even shoplifting. As a matter of fact, according to a recent Global Retail Barometer report, these expenses sum up to staggering 42 billion dollars on a yearly level.
But if you’re starting an online business, you’re probably thinking shoplifting and employee theft won’t affect you. That couldn’t be farther from the truth. Worker theft occurs in all type of business. Data leakage occurs more often than you think, and small companies aren’t immune.
Even if you implement prevention practices such as employee training, you still won’t eliminate these threats completely. Errors are bound to occur, and some people will steal no matter what, and it will definitely affect your business.
Final Thoughts
Keep in mind that these aren’t the only little-known costs you should consider. You know what they say – time is money – which means that the way you spend your time may be the biggest hidden cost of your future business.
Therefore, spend your time wisely and open your eyes widely to costs you may potentially face so you can budget properly and be ready for them.