THE HIDDEN COSTS OF A START-UP BUSINESS

You already know it is pretty important to keep abreast of current and upcoming costs during the process of starting up a business.  For a lot of people, this is one of the least enjoyable parts (assuming you are not an accountant) but this is a J(F)DI (clue: Nike tag line).  Just because you have yourself an excel spreadsheet listing all costs does not mean the job is over.  You have to update and reallocate resources regularly and be sure to keep a contingency fund for all the surprises that come to bite your backside.  As your business plans develop, you will undoubtedly incur additional costs and if working to a budget, the temptation will be to take salami slices off the contingency fund to cover the cost of better quality paper, branded bags and other things that were never part of the budget.  Just a bit here, just a bit there.  STOP! Here are some hidden costs that I faced that demonstrate the need for a contingency fund however good your planning and anticipation of consequences. I reluctantly ordered a brush from a massive company in the USA because I could not find a suitable option in the UK.  Big company; tick.  American customer service; tick; English-speaking; tick, price; tick. Able to customise; tick.   Or so I thought..... I was a week or so under their lead time and verbally they told me OK.  They wasted a week getting contract out, correcting the wrong invoicing information, re-quoting because they could not count the number of colours in logo (all the way up to 3 that is!) and taking 50% of the cost from my credit card was a bit challenging.  They sent a pre-production sample that was massively incorrect versus the globally recognised Pantone references that I supplied. 2-3 weeks wasted. They wasted another few days arguing with me about it before ordering another sample. Second pre-production sample arrives and still no closer to Pantone colours. How could they get it so wrong?  Dealing with chippy sales person with no concept of taking responsibility or giving customer service; speak to supervisor who is not much better  and another week wasted. They agree to pay air shipping.  Then later tell me that I am responsible for the airshipping from their plant to them and they will not ship direct to me.  Grrr! The sales prevention team were hard at work.  Hidden cost of airshipping increases cost of goods, which was already affected by the misquote resulting in cost increase of 30%. Not enough, the carton was pricey due to composite numbers and due to the late timing, I have to pay the fillers extra to put the brushes in the carton. +59% in cost of goods of this product.  If I were to raise the RRP, it changes my positioning so I am going to have to absorb that cost myself. Compatibility testing (ensuring product does not react with packaging; nothing to do with safety) started much later than we agreed.  This meant that in order to make my press launch dates and have product to give to journalists (good idea that!), I had to order primary packaging much earlier than is considered a safe bet. Consequences are, I have had to change the bottle and pump for handwash as a result.  The costs are 1. dumping the materials I cannot use 2. Buying different materials that are likely to be more expensive 3. having the new pump re-sized 4. additional delivery charge 5. Possibly having to face higher MOQs.  All this from that one issue and it could end up doubling the cost of goods for that product and again, I cannot increase the RRP and retain my positioning for the Customer. Starting a skincare businessThe fillers had asked me to allocate 10% waste of tubes (versus normal 5%) as my runs are pretty small. At a very late stage I was told they wanted 25% waste as it was the very first run.  It is annoying that they could not have come to this conclusion earlier since nothing has changed to affect that.  I had arranged with my tube supplier that he would label the first run and based on sales, I would tell him how to label the remainder of tubes. This is not normal; he was doing me a favour to help me start-up and I had ordered additional labels of both varieties to allow for either product to be filled.  As a result of the increased wastage, I could no longer do this.  Hidden cost; could have been the waste of labels had I paid much extra for them.  Another cost is all the time you take to anticipate and prepare and plan, is wasted too. I had a lawyer help with a contract issued by a service supplier.  It was a question of looking over the contract that had been presented and adjusting it to ensure that it covered my interests equally.  I was quoted a flat fee but did not realise that their brief allowed for minimal re-works.  Hidden cost; almost double the original quote. I had someone set up the blog on WordPress for me and paid a flat fee.  I did not know or realise to ask for a Facebook plug-in at the time.  Hidden cost; about 50% of  the original fee. Beware the 'origination' costs for all printing work.  This is often the cost of creating the plates for litho printing and could mean a significant percentage of the total cost, if it is only a small run.  Small runsare affected by 'set up' costs and it may be much more cost-effective to do two runs at once.  I did this in one instance; increase the run from 5000 to 8000 and after negotiating, it was only a tad over the original total cost. Extended settlement terms enforced by retailers you might be supplying, are another hidden cost.  You may find yourself in a situation where you have to manufacture a second run of products before you have been paid for the first order and it can seriously affect the cash flow of a start-up business. It is expected that there will be some costs that you simply did not anticipate though, it is a little annoying when you suffer the consequences of other people making mistakes that cost you more, if you are up against tight deadlines. Lesson; Plan for success, be prepared for the unexpected. Contingency fund Lesson; Ask probing questions of your suppliers and you may get fewer 'surprises'.  At the end of my initial meetings I always used to ask 'is there anything else I should be asking you that I have not thought of'? Lesson; Read the brief the lawyer gives you detailing the scope of their work properly. Lesson; Don't give up or be worn down from pursuing what is right and fair  e.g. I will take a complaint about the brush issue further in the organisation ( and have advised them of that) because I should not be funding their employees mistakes. But time it to suit your workload; I will do it after the press launch is over Lesson; Negotiate and try to get better settlement terms even for first year or try to get immediate payment for the opening order. 5P2HL - Relationship.  My best friend sent me this card of encouragement and the world looks evenMERUMAYA Best friends giving support
better now my frown of concentration has broken into rip-roaring laughter.

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