Where’s all the Profit Gone? Costs that go un-noticed but are shrinking your Bottom-Line

While planning for a project or business activity, controlling the more significant costs is easy. Sources, where such enormous costs are expected to be incurred are well thought through, and adequate provisions are usually made. However, the smaller, sometimes discretionary, and sometimes under-budgeted expenses are the ones that can often hurt you when you do not expect them. Something that may seem very trivial, such as credit card processing fees, could tend to accumulate over time and have a discernible impact on profit margin.

Here, we discuss such expenses that may not make you want to tap into your contingency fund corpus necessarily, and yet, accumulate over time and negatively impact your realized versus forecasted financial summary.

‘Miscellaneous’ Expenses

These costs are not limited by definition – any cost incurred that cannot fall into specified ledger accounts can be called miscellaneous expenses. And that is why they are a problem. The additional fuel expenses due to unnecessary trips for client meetings, the bills notched up by employees on food (and drink at times) on official trips, hotel room rent for traveling employees, the bill for free coffee in the office pantry – all such expenses could together cause a considerable dent in your profitability going unnoticed initially but building up over time.

Transaction Fees

Businesses can incur transaction fees in two different ways:

• Banks will charge a certain amount (this could be a fixed amount such as $0.25 or a variable percentage-based amount, which could be between 1.9-2.5%) for processing each transaction conducted via credit cards.
• If you are putting up your products on a third-party e-marketplace, you will have to pay transaction fees associated with the platform for every product that gets sold off the marketplace.

Shipping Costs

Getting goods transported from one place to another invokes different types of shipping costs which are comprised of:

• Packaging material cost
• Fuel cost (if transporting by self) or courier charges
• Goods Transit Insurance

If you offer free shipping to your customers to make your products attractive, the overhead costs will end up eating into the profit margins.

Insurance

This type of cost might not always result in a benefit. A business owner will always pray that they don’t need to use the benefit of the coverage offered by their insurer. However, not having to use the coverage does not mean that you are exempt from paying the insurance premium.

Subscriptions

Depending on business requirements, you need to buy subscriptions for various types of professional software. Moreover, if you have a website, you will have to pay an annual fee for the domain name and the hosting service fee.

Thus, even the other ‘indulgence’ expenses, such as the reimbursements on food and beverages, could be curtailed. Not only this, but if you adopt a hybrid working culture, you would also be able to work out of a smaller office, thus reducing the rental costs and overheads. Embracing the concept of a virtual office could help considerably avoid such expenses. Not only can you avail of most of the benefits of having a dedicated physical office, but you can also benefit from flexible work-space bookings on an hourly basis when you rent virtual office.