According to paid survey websites, nine times out of ten entrepreneurs
are too optimistic especially when starting their first-time ventures. Keeping in mind the obvious expenses, founders often forget related items that can cause unexpected outlays and as a result become a reason of venture fiasco.
To not to take a wrong way while navigating your startup and avoid mistakes when mapping out a financial plan, check out the following eye-opening list.
1. Recruitment spendings
To hire (and keep) the good talent in the tech world is really challenging. And here startups can’t do without the help of professional recruiters. But founders are often blind to the actual costs related to finding and hiring full-time employees.
Be ready to pay any recruiter the 20 to 30 percent of first year’s salary of each employee. Additional recruitment expenses like dinners, drinks, travel and your working hours spent on this task are not included in this sum.
2. Payroll withholdings
When thinking about spendings on in-house personnel, often entrepreneurs take into account only amount of wages. They forget associated expenses like Social Security, Medicare, unemployment insurance, and income tax. But these expenses can increase employee costs by up to 25%.
3. Perk budget
In modern world vacancies’ descriptions contain not only information about job requirements and bonuses. Every tech company promises an additional value for employees such as unlimited perks, lunches and so on. No one is surprised anymore by simple perks like coffee and donuts.
To get the best possible output from the staff, employers should have an impressive snack budget. According to recent researches, companies spend on average $65 per month on perks for each employee.
4. Workspace
It goes without saying that every employee needs his own workspace, as well as equipment to get the job done. The equipment of office accommodation сauses additional expenses. All material things like furniture, technics, and other office facilities should be taken into account, as well as utilities. It is better to calculate these cost per person.
According to a recent report from CBRE Group, the price per square foot for office space in San Francisco reached $72.26 in the fourth quarter of 2015—a 14% increase from last year. Take this priсe as the highest reference point to understand how heavy might be your rent outlay.
5. Attorney’s fee
It is the fee for legal services performed by a lawyer or law firm. It may be an hourly, flat-rate or contingent fee. Legal costs include not only attorneys’ fees for a lawyer’s work but also registration fees. Attorneys’ fees much depend on your geographical location.
As a rule law firms located in larger cities will generally cost you more than those in smaller cities and towns. An average range of legal costs for a startup at the Series A stage is above $30,000. Larger cities routinely see these fees in the range of $50,000 to $100,000 once you enter the Series A phase.
The fix
The startup is a rollercoaster when the profit margin is at risk. To write one more story in the book of successful startups, it’s important to notice all pitfalls.
Here are some ultimate tips how to be aware of the hidden costs and shrink the excessive expenditure:
- Talk to people that are in your line of business but not your direct competitors about what are their expenses.
- Look at the line items the same business have. The numbers will be different from yours, but the categories of expenses will be the same.
- Follow the “rule of two.” Expect everything to take at least twice as long and cost twice as much as you planned.
- Go outsource. It is a widespread practice to use outsource customer service. It can lighten your workload and help you cut down on costs providing 24/7 customer support.
This post was written by the team behind the Wow24-7.io, customer support outsourcing company, based on experience, while working with fast growing startups.
