When you run a business, you need to make sure that your income stays ahead of your expenses. The trouble is that there are a variety of hidden costs that you might not know about, and they can certainly add up. Be sure to factor in these unexpected fees or charges, so that you can form a plan to keep your accounts in the black.
Permits, Licenses and Insurance
The ability to conduct business depends on the type of licenses you have and how you maintain them. For example, you’ll need to pay a fee every couple of years to renew your contractor’s license. This license is not the same thing as your business license, which you will also need to renew regularly through the state. Given the type of work contractors do, you should also plan to carry insurance to protect yourself, your equipment and your clients, where applicable. These fees may need to be paid once a year, twice a year or more frequently. You may need to save up so that you can pay them in a lump sum on the month that they are due.
Credit Processing Fees
Credit processing fees usually take a small percentage of each transaction that you accept by credit card. It typically amounts to 3-4% of the transaction, and may not necessarily have a maximum dollar amount per transaction. If you sign up for one of the many payment-handling platforms like PayPal or Square, you’ll still need to pay the transaction fees. You can avoid this problem by deciding not to accept credit cards, but that depends on the way you plan to run your business. Contractors who work primarily with residential customers and not businesses may find it very difficult to do business without accepting credit cards.
Interest on Debts
It’s not uncommon for business owners to carry at least a small amount of debt in the form of small business loans or a line of credit. Before you apply for loans like this, you should consider the interest rates and how quickly you will be able to pay them off. For example, a fixed-rate loan at a low rate gives you a predictable payment you can plan for until it’s paid off. A line of credit or a business credit card offers you flexibility in determining how much money you need. In exchange, you may have to deal with an adjustable interest rate. Keep in mind that credit card companies aren’t necessarily required to keep a fixed-rate credit card at the same rate after the initial term. With advance notice, they may be able to raise the interest rate over time.
Late Fees or Extensions on Rentals
Many contractors find that renting equipment is often quite a bit cheaper than buying it. After all, if you don’t use the equipment daily, you don’t want to pay more to have it sitting in a warehouse most of the time. When you reserve the equipment, you should pay attention to the rental interval and what happens if you’re not able to return it at the right time. Getting charged for an extra day of use or a late fee could double the cost, which may amount to hundreds or thousands of dollars that you did not expect.
You offer employee benefits as a way to keep good workers and entice more to join your team. Even if those benefits aren’t tangible, they still typically come at some kind of cost. For example, if you offer employees a few weeks of paid leave each year, you must expect them to take it. If you only have a few employees, you may not be able to maintain the same level of productivity while they are taking a day off. It is wise to consider your cash flow so that you can always cover payroll, regardless of the project that you are working on this week.
Running a contracting business may cost more than you think. If you pay attention to these hidden costs, you’ll have a better idea of what you can expect. For a great investment to help you prepare for the contractor licensing exam, visit CSLS today!