Where has all my money gone? Hidden costs of starting or running a business


You have a great business idea and your customers are lining up. But you are not seeing the matching profits. When it comes to starting or running your own business, you have to consider the unforeseen or hidden costs.

So, you’ve got a solid financial plan for your business and now you’d like to start making a profit. But every month your bottom line seems to be less than you expected. It’s time to stop and take a closer look at where all your profit could be going.

Drawing up a good financial plan is only the first step to making sure your business reaches the potential you dream of and that is doesn’t become part of the very harsh statistic that 50% of new businesses fail within the first five years. In this time, there are many hidden costs and, as a business owner, you have to make sure that you have the cash flow to cover the everyday running of your business. In this article, Discovery Insure CEO, Anton Ossip, unpacks some of the costs that creep in or that you can forget about when starting and running a business.

“To make sure that your business doesn’t fall victim to all the small things that can eat up your profits, you need to have a practical approach. The first step is to identify all the known and hidden costs that can affect your business and to include this in your financial plan,” says Ossip.

6 costs that affect cash flow in a new business

  • Expensive loans:

It is rare to have the upfront capital in cash when you start a business. Many new business owners will need a loan to start the business. When you take a loan, you need to be aware of the interest payments on this loan, which can increase monthly repayments and the total loan amount.

  • Employee costs:

Small business owners need to consider not only the cost of providing a basic salary, but also all employee-related expenses and benefits. You may know your monthly salary payments. But, hidden costs for employees can come in the form of training, uniforms, medical aid, transport costs and other basic employee needs.

  • Legal and general consulting fees:

Think about the costs of the specific services you will have to use. For example, the costs of marketing, where you might hire a freelancer as opposed to a full-time employee. Here, you may also have costs related to legal or financial consulting services.

  • Technology-related costs:

This includes software licenses, computer accessories, cloud storage as well as the maintenance of technology assets.

  • Fees and permits:

You also need to be aware of any fees that you may need to pay or permits you need to obtain to operate in your chosen field.

  • Administrative costs:

Administrative costs include phones, printers, filing cabinets, office stationery, and office cleaning supplies – small costs that add up quickly and need to be included in your financial plan and budget.

While you may not consider insurance a necessity when you just start your business, Ossip says that business owners should also consider the benefits of having business insurance upfront. Including business insurance in your financial plan helps to protect the business assets and gives you cover for unforeseen events the modern-day business may face, such as cybercrime and reputational damage.

4 hidden costs that affect cash flow when running a business

  • Maintenance:

It is important to factor in the costs of maintenance, servicing and repairs to buildings and equipment. “It is prudent to maintain and service equipment and property to keep it in good running condition for longer rather than having to replace the items or property regularly,” Ossip says.

  • Shrinkage or loss:

Businesses selling physical products can experience loss of inventory, which may be as a result of theft, damage and errors. This can lead to additional costs when replacing items.

  • Upgrades:

Business owners should consider the cost of updating software and business processes within a changing business environment.

“If businesses want to keep up with competitors and ensure they maintain and grow their market share, they will want to ensure that they continue to invest in technology and new processes,” Ossip explains.

  • Unexpected costs:

Throughout the business cycle, unexpected costs will arise. Anything could lead to business interruption, for example loss, damage and theft of business property, cybercrime, and reputational damage. All these have the potential to interrupt the business activities and can mean you need to spend extra money you may not have included in your financial plan.

As a business owner, you need to be prepared for hidden costs and find ways to protect your business against negative effects.

How can business insurance help SMEs?

“Businesses face many physical risks on a daily basis, which can threaten their sustainability,” Ossip says. Think for a minute what would happen if your business was damaged in a fire. Not only would you have property damage to consider, but also a loss of income and suspended operations. This is when you would need business interruption cover.

“This is one area that Discovery Business Insurance has chosen to focus on in our insurance innovations to protect small and medium businesses,” Ossip explains. “Traditionally, business interruption would follow material damage to property. We have expanded our business interruption cover to follow theft, damage to electronic equipment as well as loss of or damage to your business vehicles. This makes sense in a world where small businesses rely heavily on electronic equipment, for example, to ensure continued operations.”

There are many hidden costs when starting or running a small business. “Entrepreneurs can protect themselves against these hidden costs through effective budgeting, financial planning, and insurance,” Ossip concludes.

Competition T&Cs

About business insurance from Discovery

We understand that different businesses have different needs. That's why we give you comprehensive, yet flexible, insurance cover that is tailored to your business and considers the business risks you face in a modern, fast-paced world. You'll get business insurance that is driven by technology and built on a model that shares value for managing your business well.

Through our partnership with Endeavor South Africa you'll have access to a diagnostic tool that will help you identify key areas of development so that you can grow your business. In addition, you will get access to service providers, at a preferential rate, who can help your business develop in the right direction. To find out more, speak to your financial adviser or contact us and we will help you

Business Insurance from Discovery

Discovery Insure's Impact Alert sends help when you need it most

Wish you had the technology to call for help when you most need it? Discovery Insure’s Impact Alert feature can detect when you’ve been in an accident. If we can’t get hold of you immediately, we’ll send emergency assistance to your location, while our Vehicle panic button can be used to alert emergency services when you’re in your car and need help.

Find out more about this benefit here

Related articles


Top financial planning tips for entrepreneurs: have a sound financial plan

In South Africa’s entrepreneurial landscape, good financial planning is important when it comes to making small businesses not simply survive, but thrive.

Log in

Please click here to login into Discovery Digital Id

Please click here to login into Discovery Digital Id