Regardless of how well businesses are prepared with managing business expenses, inevitably, every business will experience unexpected business expenses from time to time. If unprepared, such unforeseen expenses can impact businesses significantly. Aside from setting aside a good budget, it is important for business owners to be proactive in staying cash flow positive for long-term success and business growth.
Unexpected Business Expenses
The following are some common unexpected business expenses where businesses usually failed to account for. While some of the expenses are obvious monetarily, there are other costs involved that are not classified as a direct expense in return for a good/ service but are nonetheless cost to the business.
Equipment and Maintenance
This is especially important for businesses where equipment is critical to keep the business ongoing. As the business grows, the expenses for getting additional equipment must be accounted for. Business owners may even wish to upgrade equipment for greater efficiency. Not to forget, over time, equipment will incur maintenance cost to keep the asset operating at its present condition.
Business owners are not a specialist in every aspect of running a business and that’s where professionals are needed to help the business succeed. Professional services like accountants, HR-services and lawyers can get costly but the cost of not having them can be much greater in the long-run. Therefore, business owners should allocate more budget for professional services. By doing so, business owners get to free up their time to better focus on growing and operating the business.
Loss of Clients
‘Don’t put all eggs in one basket’. Over the course of business operations, clients can and do go away. Rather than focusing on one or two major clients/contracts, business owners should diversify by building a wider clientele base.
A business cash flow is dependent on timely payments from its customers. When expected payments are delayed, cash flow would take a hit. This is especially evident when payments are expected by a certain date in order to cover other expenses.
Ways to Budget
Business owners should keep unexpected business expenses in mind while doing budget planning.
Have an Emergency Fund in Place
An emergency fund should contain enough money to cover between three to six months’ worth of expenses. An emergency fund helps to prevent businesses from having to borrow money at a high-interest rate to make payments. When business opportunities arise, this fund will also come in handy.
If the emergency fund is insufficient, it may be necessary for business owners to tap on getting financing. There are going to be times when a business needs working capital to bridge a cash gap. It pays to be forward-thinking about your finances. Business owners should have financing facilities in place to obtain cash flow whenever the situation requires. One such financing facilities is invoice financing where there are no contract lock-ins, a pay-as-you-use facility.