Many New Zealand businesses are run out of a small office or home, and it's no walk in the park. The home-based model for any business incurs the stress of defining lines between work life and home life and arranging the right equipment and environment for the job.
Whether you are starting out or have been running a successful business for years, every cent matters. Hidden costs can be difficult to forecast and can weigh your business down. Financial experts recommend a contingency sum of about 20 percent of profits be set aside to meet the unexpected. Here are some ways to help identify hidden costs.
Renting office space
The decision to rent a space for your business may be one of the most complex and daunting choices you make. Deciding to rent a space can hit your bottom line in a big way. There is always an initial large cash outlay and thereafter a regular and unforgiving commitment. Before signing the contract, carefully read through to see what you are going to be held responsible for, keep an eye out for details on property maintenance, parking expenses (not all properties have available parking, check for additional parking fees) and council rates.
Gas, water and electricity bills can come as an unpleasant surprise. Reading the fine print of a contract, especially when it comes to electricity, is essential as the price you may be quoted for initially could go up as much as 100 percent over a few years. It is common practice for proprietors to send in electrical surveyors to look at equipment used and analyse the cost presuming all equipment is running 24/7. This is called assessing electrical usage based on “connected load” as opposed to what you really use, which is “demand load”.
Cornell University recommends setting the temperature in your office to 25 degrees Celsius, which not only saves on electricity during the summer but is also proven to improve productivity.
It’s one thing to go through the pain of the initial purchase of computers, printers and coffee machines but what about the associated and ongoing costs of consumables and maintenance? Computers seem to need continual updates and are as rapidly upgraded as today’s smartphones are. The cost of running a printer will far outweigh that of the original price tag and careful consideration of the costs of printer consumables over time will help you identify unexpected overheads.
The best way to judge total cost of ownership (TCO) is to calculate running costs, environmental impact and staff ergonomics. To do this, use a TCO calculator, which will provide you with a comparative breakdown of running costs over the life of the product, a crucial consideration when considering which hardware to invest in.
It may be a cliché but your time IS your money! Taking the time to strategise the importance and operations of basic business management tasks will provide a good forecast of the labour involved. Working out the opportunity costs on these rudimentary jobs (e.g. what you could be doing to earn while spending time on administration) will quickly give you some perspective on whether and what to outsource.
The most unexpected of all hidden costs is repairs. You can set a budget for the year, plan for phones bills, rent, and replenishment of small office supplies but it is very difficult to plan for repairs. As recommended earlier, reserve a line in your budget for unpredictable expenses, approximately 20 percent of profits. Another option to consider the regarding purchase of office hardware is to research what companies offer to lease key equipment. This option packages the cost of your document management systems into a predictable monthly cost.
David Finn is managing director of Kyocera Document Solutions, Australia and New Zealand