One of the major reasons why so many small retail businesses fail is because the owners lose track of their expenses. This leads them to all sorts of cash flow issues and debt over time. All of this can be avoided with a solid plan and by making sure that you keep your costs as low as possible. You also must be aware of all the hidden costs of running this kind of business. Let’s look at some of the costs you’ll have to cover when running and starting a small retail business.
Insurance Costs
Insurance coverage, and general liability insurance, in particular, should be at the top of your list when starting a business. General liability insurance can help cover you in case someone injures themselves on your premises. It will also protect you if one of your employees ends up injuring one of your customers or causing damage to their property.
You will also need to add insurance to protect your premises, cover things like business interruption, and cover things like intellectual property. You’ll need to provide coverage for your employees as well.
Inventory Costs
One thing a lot of people don’t truly understand when they start a small retail business is inventory costs. If you sell perishables, for instance, you’ll have to think about the costs related to losses. Storing and managing your inventory incurs costs too and these costs will have to be kept under control for you to be successful in the long term.
Some costs are less evident than others as well. If you hold excessive inventory, a large portion of your assets could be tied up in the inventory. Holding slightly less inventory could allow you to invest in things like marketing which could bring you more profits in the long run. So, you will have to manage your inventory strategy in a way that will allow you to hold as little inventory as possible without affecting your prices.
HR Costs
Hiring and HR costs are things that very few people truly know how to plan for. You never know how big your revolving door will be, and if you can’t manage to keep employees for some reason, your costs will expand. You will have to spend more time recruiting, interviewing, and training employees as a result, which can affect your bottom line.
Another thing you must think about is the benefits. You need to find a way to offer competitive benefits even though you won’t have the same budget as bigger competitors. This can be done by working with organizations like PEOs that can pool the resources of their members.
You could also decide to work with a third party to outsource your HR department. This will keep your costs more predictable, and since they are more experienced with hiring, you can expect them to allow you to keep your employees a little longer.
These costs are some of the sneakiest for most small retail businesses and being on top of them from the start will give you a much better chance of succeeding over the long term. It would also be a good idea to sit down with an accountant or consultant before you get started so you can get a real idea of how much you can expect to spend on your business.
