Every business needs to be prepared for unexpected costs. You can have a perfectly designed budget plan, and then—wham—one random event throws your entire plan out the window. This can be a natural disaster necessitating repairs, an on-site accident, or a change in the economy that renders part of your business plan moot.
But just because you can’t plan for every possibility doesn’t mean you can’t protect yourself from the financial fallout. Building in a cushion for your business before launching means you’ll be able to weather the storm better and come out of the unexpected event stronger. There are a few ways to fortify your business against the unexpected.
The best way to ensure your business has the money for any unexpected costs is to have extra money on hand. While this isn’t always possible, and many of the best businesses started on a shoestring, building a cushion into your startup budget is important. Before expanding or making major new purchases, make sure you have a safety net.
When setting up your initial small business budget, make sure to account for “invisible costs.” These costs include changing up your purchase plan based on outside circumstances and having the money for repairs if a critical item breaks down. Ideally, you won’t need these emergency funds, but the peace of mind is worth the investment.
Make Sure You Have the Right Insurance
The most important step to protecting your business is making sure you’re properly insured. Your small business insurance cost is determined by a number of factors—your industry or business type and its risk level, location, loss history, experience and time in business, and where you get your coverage. There are several types of insurance you’ll need for maximum protection, including:
- General Liability Coverage– This insurance covers your business costs when responding to claims that caused property damage or bodily injury to a third-party. This is essential to ensure you don’t have to pay out of pocket for your legal defense or personal incurred medical expenses.
- Workers’ Compensation Coverage– Not only is this insurance critical, but it’s legally mandated in most states. This will cover your employees’ medical costs for any job-related injuries and protect you against lawsuits—in most cases, accepting workers’ compensation means employees waive the right to sue.
- Business Interruption Insurance– This insurance replaces income lost due to a total halt in business caused by unforeseen circumstances like a fire or natural disaster. Read your coverage carefully—some policies have carve-outs for specific circumstances, including viruses.
- Commercial Property Insurance– If your business operates out of a brick-and-mortar location or relies on a central office, you’ll want to protect it. This is usually bundled together with other packages like general liability coverage.
Pay Attention to Regulations
One of the most common unexpected liabilities for a business is civil fines for violating business regulations. While you might try to stay compliant with major laws, it’s easy to let local regulations slip under the radar—especially when they change frequently based on borders and changes in administration.
While most municipalities don’t hammer businesses with heavy fines for first offenses, except a few critical issues, minor infractions can add up quickly and wreak havoc on your budget. Make sure to review local laws and keep a close eye on the renewal dates for your permits and certificates to avoid any unpleasant surprises.
Common Unexpected Costs
Even if nothing goes wrong and you don’t run afoul of any regulations, you can expect to encounter some unexpected costs in your first year of business. Many businesses find unpleasant surprises at tax season when they realize they come in over budget. Credit card processing fees, while they may be individually small, can add up.
Technology is another unexpected cost. Old equipment can fail with relatively little warning and need an upgrade to stay connected. New partners may require a specific piece of equipment to set up their operation. Expect some additional purchases to pop up each year.
Having a plan before something goes wrong is the best way to protect your business. If an emergency happens, have a trusted contact in place rather than taking your chances with the first name on Google. This is especially important if there’s an electrical or plumbing problem. The damage can add up and become harder and costlier to fix, leading to an extended shutdown. If you’re able to take action quickly, a small problem can stay small and save your budget.
Are You Prepared?
Even the best business owner will face challenges eventually. You can’t plan for every eventuality, but you can protect yourself. Set your business up with these few simple tips, and the unpredictable outside world won’t be able to knock you off your business model.