The 5 most common unanticipated business expenses
Common surprise costs include employees, finance, contracts and compliance, operations, and sales and marketing. Your company is unlikely to be affected by a volcano eruption or, say, an EMP attack. But you will face disruptions, and recovering will cost you some resources.
Business leaders often have to make unexpected investments in their workforces. That could take any of the following forms:
- • A star team member asks for an unscheduled raise or bonus.
- • A bad hire requires excess development and then quits anyway.
- • A worker is on family leave and must be replaced temporarily.
- • An employee leaves the company and conspires to take customers along with him.
Due to the COVID-19 pandemic, many businesses were forced to pivot and bring their operations (and workforces) entirely online in the wake of shelter-in-place orders. As employees shifted to working from home, businesses inevitably incurred costs during this transition, from new software to new servers to stipends that helped employees set up a home office.
Your accounting department (even if that’s you) also requires spontaneous financial coverage sometimes. That might mean
- • you pay for a future product or service that is never delivered;
- • the interest rate on one of your loans starts creeping up, requiring an increase in budget allocation;
- • you find that your taxes were prepared incorrectly, and now you owe penalties;
- • your insurance company raises its premiums; or
- • money that’s owed to you becomes unrecoverable, creating bad debts.
3. Contracts and compliance
Your careful scrutiny of all contractual agreements should safeguard you from surprise costs, right? Unfortunately, no — occasional troubles arise in this department, too.
For example, a contract payment slips through the cracks, incurring hefty late fees. Or a competitor steals your intellectual property, and you must go to court. Maybe (hopefully never, but maybe) you discover a team member has been breaking the law to overachieve on goals, and now you owe.
You could also unexpectedly be sued for the following:
- • Internal harassment or discrimination
- • An injury on your premises
- • Negligence
- • A contract violation
- • Violation of wage laws
While compliance mea• sures exist to safeguard against unexpected business expenses, sometimes the unthinkable is impossible to prevent.
Running your day-to-day operations is risky — but rewarding — business. Common operational glitches may include a scenario in which a mission-critical piece of equipment breaks or underperforms, or your commercial property manager raises the rent.
In 2020, business travel for millions of business leaders was disrupted. And even if it’s not the pandemic next time, unanticipated weather and human error can still have you scrambling for alternatives and booking costly nonrefundable doubles.
Here are some other common surprise expenditures you might face:
- • A premature software upgrade, when you outgrow your programs and must subscribe to the next tier of service sooner than expected.
- • A surge in consumption. If your utilities fluctuate more than usual in an exceptionally hot or cold year, it’ll cost you.
- • An occurrence of internal theft. According to the U.S. Chamber of Commerce, 75% of employees admit to having stolen at least once. Further, half of those who admitted internal theft say they steal repeatedly.
5. Sales and Marketing
You know that attracting customers will cost you, but did you know that your marketing activities can be the source of some surprise expenditures? Commonly, companies invest in an advertising medium or channel that delivers no leads or ones that are low-quality. It’s an unanticipated waste.
Another common scenario is when a business leader speaks at a conference at which they’re sure to acquire lots of connections — but the organizers cover only basic expenses. Sometimes, sales teams ask their company’s leaders for permission to send gifts to clients. Or a favored digital marketing channel unexpectedly doubles its price for targeting you can’t get anywhere else.
Budgeting for advertising spend is smart, but including a cushion for spontaneous coverage of surprise costs is even better.
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