Unforeseen Business Expenses

Starting a business can be unpredictable, and unforeseen expenses are a reality for many new entrepreneurs.  However, being proactive about potential challenges and solid financial practices can help you stay on track and ensure your startup survives and thrives in its early stages. This episode covers some key points: Initial setup costs, equipment, supplies, insurance expenses, legal advisors, marketing and branding. The key is to prepare, while remaining adaptability to changing circumstances. 

Thank you for tuning in!

Cheers ~ Jeremy & Nick

Your Brand, Your Back Yard with Jeremy & Nick

Transcript

SPEAKER_00 0:09

All right. Here we are back with another episode. Nick, it's great to see you. Here we are. Uh, episode 13, key lucky number 13, right? Yeah, it's good to see you again, man. I know it we took a little bit of a bit of a break here, but we've got a great topic, and I'm excited to take a deep dive in. Uh, but before we get to the content for today's episode, I know that you've got some changes going on. You got you got some new businesses that that you're starting, which is very, very relevant for today's topic. You want to talk to the listeners about what you got going on?

SPEAKER_01 0:44

Yeah, yeah. So I've had the kind of the entrepreneurial nit uh entrepreneurial itch for a while again, as I've run business off and on, and and so made the decision to step back into kind of entrepreneurship side of things. So we're launching a couple of new businesses, one with some executive coaching and things that I've done over the years, break part-time, hit and miss, and then also running a maintenance company. So it kind of led to the topic that we're talking about this week of like all the unexpected expenses when you start a business, and some of it applies to when you expand a business, but really when you start a business, there's all these things that people don't necessarily think about. And all of a sudden they're like, oh, that was an extra hundred bucks, and that was 200 bucks, and that was 500 bucks, and boy, that was more than I thought. And it just kind of can really start to spiral very quickly. And I think it's really important that we hit those so we can incorporate that into pricing structures. Yeah.

SPEAKER_00 1:32

Yeah, I I think that's great. Well, congratulations to you. Best of luck on starting and growing and being very, very successful. I have no doubt it's gonna go well for you. Of course, everybody has hiccups, there's always challenges, but let's uh let's go ahead and and address some of this. You ready? Yeah, let's dive in. Okay. I think one of the things here that we have in our notes is and we're gonna really hammer the unexpected expenses. And no matter how much research we do, Nick, we really try to be thorough, don't we? Create spreadsheets and now we've got AI to, you know, maybe help us predict what, you know, or think about things that maybe we wouldn't. But the number one thing that we have here is employ employee costs beyond the salary, factor in recruiting, training, workers' comp, and then of course, payroll tax. And that's the thing. Like my wife and I, we uh we W-2 ourselves out of one of our companies. And those were things like I was like, we're gonna have a payroll service and they're gonna do everything for us, pull out of our taxes, and then all of a sudden I look at the taxes that we pay out of our paycheck, and then you look at the taxes that you pay out of the corporate, right?

SPEAKER_01 2:44

Yeah, yeah, because you're hitting the that unemployment as an employee, you're 7.65%. But when you run a business, yeah, the employees paying that, but also the employer is paying 7.65%. So it doesn't seem like a huge amount when you start talking about multiple employees and salaries, you know, just that alone can really start to creep up on you all of a sudden you're like, wait, that's an extra, you know, a thousand, two, three thousand dollars a month that I wasn't counting on in my cash flow. So those things are really, really easy to to kind of miss over or or misunderstand, I guess.

SPEAKER_00 3:14

Yeah. Now, in your opinion, and and this is strictly an opinion, not advice, and of course it the answer is gonna lie within the business, the business structure, the business category. But where I'm going with this, Nick, is maybe to avoid some of that initially. I mean, should you consider subcontracting or or 1099?

SPEAKER_01 3:36

Yeah, I mean, I think it's again, it depends on what industry and if it's uh you know, if can if it's legal to do or not, right? Some industries you could easily 1099 people out, especially if in their contractor world, things like that. In some industries you can't. But uh yeah, if you can go the independent contractor route, that that always is better because it it reduces a lot of those initial expenses that you might have from a tax taxation standpoint.

SPEAKER_00 3:59

Yeah. Now, obviously, if you're running a hardware store, which I know that your family has that that background, well, you would just have to hire people to run the cash register and just talk to shelves and you're gonna pay them a salary or or hourly, and and that's just not an option.

SPEAKER_01 4:13

Yeah. Yeah. Generally, if you're controlling when, where, and how they work, there's not much choice. They're an employee. But with, you know, especially in the trades, like I said, when you they have some flexibility over exactly when they're working and where they're working and and things like that. So sometimes you can, you know, if you again you need to consult with the proper people to make sure you're you're you're reading that correctly in your industry.

SPEAKER_00 4:33

Yep, that's right. Let's talk about insurance. This is a this is an exciting one. We all love paying insurance, don't we? Yeah.

SPEAKER_01 4:40

Well, I remember that was the the first real business that I ran when I went and I talked to my insurance agent. I'm like, yeah, I need to get auto insurance, but I want to get commercial. And I remember the quote came back, and I was like, what? No, this can't be right. He's like, yeah, commercial is more expensive. And then I found out not only is commercial insurance more expensive, you have things like a liability insurance. So it could be as simple as a general liability policy, but it might be 500 bucks a year, or you might have to have a policy that that's thousands or tens of thousands of dollars a year. Again, depending on what industry you're in and and you know what's involved and the risk there. But there's all these uh insurances that you don't think about. Um, you know, depending again what industry you're in, you could have um, you know, insurance you need to cover on the digital side, you could have, you know, errors and emissions if you're in the printing industry or you're in advertising. So there's just lots and lots of things are out there that are typically a lot more expensive than people realize because it's done on a commercial basis.

SPEAKER_00 5:36

Yeah. And this is one that hit me, you know, Nick. We've we've got our painting company that that we launched last year, and I was thinking, you know, just general liability, you know, just kind of an umbrella policy. All of our subcontractors carry their own subcontractor insurance, but I wanted above and beyond that. You know, everybody asks, you know, proof of insurance. So I knew that this was extremely important. And I got my first quote, and I I'm gonna, I'm gonna suggest to listeners, you know, really do your due diligence, really shop around. Because my first quote was something like four or five hundred dollars a month for just very, very minimal, very basic coverage. And luckily I did shop around. I ended up finding a a policy for I think it's about eighty-five dollars a month or something like that. So don't sign up with the first policy, the first agent that you get in touch with, shop around for sure. See if you can uh save some money on that.

SPEAKER_01 6:34

Yeah, that's a huge one. I've had that same experience where people think, well, they're they're an insurance person. They're, you know, they're they're good. Well, it's just like any industry, some are better than others. Some have more expertise in certain areas, and they're paid different ways and the compensation. And so, yeah, you got to do your research, but just expect that it's gonna be a little more expensive for sure. Yeah. And and I and that kind of leads to even the next thing, uh, Jeremy, which is you get into that's insurance, but what about the professional services, right? So you might have you might need to hire an attorney to look at contracts. You might need to, you know, you would you're probably not gonna do HR block for your taxes anymore. That just here's my W-2 and here's how much I paid. It's super simple, or you're not gonna do that, you know, at home. And I remember that that was a shock to me the first time I got the bill, and they showed me, okay, here's what it is to do your personal taxes, and then here's how much it was to do your business taxes. I was like, wow, that was a lot more than I was thinking. But then when I saw the whole portfolio, I'm like, well, there's K1 statements and there's cost basis, and you start, see, it's not a simple two or three page document. There's even a symbol business has many, many, many reports that they're keeping track of.

SPEAKER_00 7:39

That's right. And it's also a checks and balances. Not only are you paying somebody, you know, a good amount, to be clear, but that's protection for you. You know, that's checks and balances. You submit your PL, you submit your receipts, and you have somebody in your corner that's, you know, might suggest, like, hey, Nick, I noticed that you, you know, you don't have any marketing expenses. Did you pay for a website? So they can check and make sure that you've dot every I and you cross every T to maximize deductions, but also don't take that too far to where you you're red flagging yourself for for future audits.

SPEAKER_01 8:17

Yeah, and they know a recordable accountant will know, hey, this is a problem area, this area you're okay with. So they they kind of can tell you, they won't tell you you can or can't do this, but they'll say, hey, uh, you might think about that. That's a red flag for the IRS. And so they'll be able to give you some good insight to what's reasonable and what's not reasonable, uh, just you know, so you don't get get yourself into legal problems. That's what that's a real issue.

SPEAKER_00 8:41

Yeah, the other one on here, too, that's listed is a marketing professional or consultant. And I'll although I'm a firm believer, Nick, you know that, of marketing and having somebody on your team looking out and you're really drawing up what you the marketing strategy strategically should look like, that might be some person that again, you want to delay on, you know, either hiring the accounting firm or I'm sorry, the marketing firm, which can be expensive, or certainly bringing somebody in-house and paying them, you know, eighty, eighty-five thousand dollar salary. Again, you might not, depending on how you're funding your new business, if you're self-funding, that might not be something. And again, turn to AI, Google, you know, ways to market my business and see what you can do or get started on your own.

SPEAKER_01 9:33

Yeah. And it like I said, this was a really interesting experience for me even the last couple of weeks. As I'm going through, I'm like, okay, I'm sorry, this new company. So I start going through the steps. I'm like, okay, we've got to come up with a name. Came up with a name, got to see what's available, right? Here's names I like. Are they available for the domain? So then you got to buy the domain. Well, you buy the domain, then you've got to go, okay, well, now I got the domain, but I got to have put someplace to put it, so I have to find somebody to host it. And you can go real cheap. There's some of them that are very low, you know, self-ex uh very low and kind of self-service type things. Like Go Gaddy. Like Go Gaddy or Wix, yeah. There's nothing wrong with those at all. They were great, but you're still gonna spend some money on a hosting, and then you go, oh, oh yeah, I got to get an email address. Well, I can do a Gmail address for free, but that's not quite as professional. I want my own company email, so that's gonna cost you know, through Google or works, you know, works 365. So now there's cost for that. And you go, well, I probably need a logo. Well, gosh, I can create my own logo or I can pay somebody to create a logo, but in order to create my own logo, I might have to have certain software. So I might have to now use the license with Illustrator or whatever it is. And then you start like, oh, I got to register with a state, and there's a fee for that. And oh, I want to get some advertising out. Well, it's gonna cost me this. And I, you know what? I probably should have some contracts, so I got to have those created, and I've got to do this and some business cards, and then you just start going to the list, and it's just like ding, ding, ding, ding, ding, ding, ding, ding. And all this before you've turned a single dollar, right? This is so you can get your business out there and start to tell people about it. So I think it's just important you have a realistic understanding of these are the costs of doing business. It's not a bad thing. And by the way, they're all tax deductions, they're all write-offs. So when I bought those domains, and sometimes I wasn't sure well I'm gonna buy three domains because I'm not sure which one I want yet. And and and you know, it's you don't want to go spend money just for the tax write-off, but it is, you know, you do get some benefit there of uh financial stability as well.

SPEAKER_00 11:23

Yeah, and those are cornerstone pieces to starting a business. It's like it's like the foundation, right? You have to pour a foundation of concrete before you can erect the structure, the house, or the high rise. Um bigger the building you want to build, the bigger the foundation that you have to build. And all of those things that you just mentioned are so crucial. And you know, when we started that painting company, I was able to go, I went through Wix and we designed our website. Wix has a logo creator built into that so that I was able to create my own logo. But yeah, everything that you just mentioned is so important to just getting the business off the ground. And so I would advise if you're self-funding, you know, on your tax return, you can actually loan money, which is a deduction on your individual return. You loan that to the business, and then over time, the business repays that loan back to you personally. So that is what we did for our painting company. I'm sure you're doing the same thing.

SPEAKER_01 12:22

Yeah. And one of the things is really interesting too, uh, you know, my wife, uh, she's been kind of helping with just some of the preliminary, like flyers, but I've also have some people that I trust that professional graphics that I'm sending over. And she was like, well, how about this? That I go, listen, this is the beta one. I know that as much as we're thinking through this right now, as soon as we start using this, we're gonna realize, oh, I want to change this and that and the other. And here's the contract. So I said, I want to do this with understanding this is gonna be beta. We're gonna test it a couple places and figure out a few of the bugs first before I go order a thousand contracts, before I go order, you know, this and that. So we literally went in and created our own business cards, about 500 of them, just to just to kind of get out. So we're starting to do some networking and things, just to have something to hand out. But I know those aren't gonna be my long-term cards. I'm gonna have those professionally done, but I'm like, I want to get something out. I don't want to wait two weeks to get business cards in. So there's that. I'm gonna do this beta version just to get it out there, knowing it's not perfect, but it gets me started. And that's one of the problems that I think business owners have. They try to get everything perfect right away, and it's just not possible. No matter what you do, how much you think through it, you're going to have to make changes on the fly. So you don't want to invest too heavily. I don't want to go out and drop 20 grand on a website until I know my business models exactly how I want it.

SPEAKER_00 13:38

Yep. And again, we did the exact same thing. We, my wife and I, we actually built our website on our own. And then as we evolved and started making a little bit of money, then we actually outsourced that. So we had a company that we paid um a pretty good amount, still, in my mind, great value. They took over the website because what we were missing is enough pages and enough keywords to be able to program for SEO search engine optimization. So our Wix website did not qualify to work in partner with Google. And so we had to completely rebuild it, redesign it, upgrade it, upgrade the hosting and the security. But again, we we made one short term that was almost no cost, and we got a few jobs, made a little bit of money, and started upgrading. So that is a very good point.

SPEAKER_01 14:27

And one of one of the point, one other point on that, real quick, too. So you don't think about like, oh yeah, I have to have credit card processing. So I have to find somebody that's going to provide that. And there's a monthly fee for that, and then there's a transaction fee for that. Who am I to get it for that? Right. And again, some businesses' credit cards are hugely important, other businesses not as much. But it's just all these little things that even if it's only$20,$30,$40 a month, when you start adding 10 or 15 of them together, it does change the cash flow that you may be thinking, like, oh, I've got this much runway. That might change some of those projected numbers on how much runway you have and how much money you need to put into the business.

SPEAKER_00 15:00

Yeah. Yeah, absolutely.

SPEAKER_01 15:02

What about maintenance and repairs? Yeah. Well, I mean, it's a reality just in life, right? If you have a home, you have maintenance. If you have a car, you have maintenance. If you have, you know, anything, you have maintenance. Well, your business is going to have maintenance too. So whether that's copiers or printers that you may have, or maybe that's a vehicle you have, you know, stuff's going to wear out. Maybe equipment, things wear out, and you have to plan on that. Um, now there are some great things, you know, from a tax standpoint. If you start getting into equipment that give you some huge advantages financially, um, you get into things that are, you know, business equipment and the schedules that go with that. But yeah, you just have to plan on you're going to have some repairs to your business stuff. And it's going to break down. Your computer's going to crash, and you're going to have to go buy another couple thousand dollar laptop that you weren't planning on. Um it's just it's just the nature of running a business.

SPEAKER_00 15:53

Yeah. All the fun stuff, right? Uh-huh. Technology, descriptions. You've already touched on um the payroll processing, but you might have to have special software. Like we have an accounting software, we have um an estimator software, which is fantastic. Um, it's also doubles as a CRM system. Uh, so when we do estimates and we hit send, it sends it to them via text message as well as email. And in that built-in software, they can pay, and that's linked to our business bank account. So I would definitely look into, again, depending on your business, software AI admin or assistant, you know, somebody to answer your phone. If you're if your boots on the ground, if you're a plumber and you're under a sink, I mean, you can't reach all the time to answer your phone, but you gotta answer your phone. So I would highly recommend looking into any software that makes your life easier, organizational, payroll, all the things.

SPEAKER_01 16:50

Yeah. In the world today, software as a service or SAAS, I mean, there are so many technology companies that there's a lot of off-the-shelf stuff that you can buy, much more than it used to be, you know, 10 or 15 years ago, where you you don't have to go invest the huge amount of capital, but you could you still have to pay for subscriptions and monthly fees. Be aware of that. The CRMs, as you mentioned, um, that's all part of it. And the CRMs might be a couple hundred bucks a year, two, three hundred dollars a year for a simple one, or it could be thousands of dollars a year, depending on how many users and what functions you want on it. Again, there's always a spread on this stuff.

SPEAKER_00 17:26

Yeah. And I would I would find the software and the CRMs that you can start with a basic subscription, a basic level, but as you scale, it's got the capability to handle the future of your business. So you can add, you know, 10 users, 20 users, more intelligent components, if you will, again, as the business grows.

SPEAKER_01 17:47

Well, you want to hit on the, you know, one of the things that we have to always be aware of, I think, is is the emergency fund, right? We never know when unexpected expenses are coming as a business. You never know, you know, the the thing I found about business is that you can go from having the best month ever to all of a sudden things are like, what that what happened? And I remember there were times in in some of my prior businesses where I'm like, oh my gosh, we just can't keep up. This is awesome. And all of a sudden it's like, wait, did all our phones get disconnected? Because the phone's not ringing anymore and nothing's happening. And all of a sudden you're like, oh my gosh, as soon as you hit that panic mode, then like six calls come in the deck that afternoon. You're like, okay, we're good again. And and so we just have to always plan on those ups and downs, that wave that's happening. Just expect it to be a little choppier than you think it's going to be at the beginning.

SPEAKER_00 18:31

Yeah. So the emergency fund, you know, when when things are going well, do do the best that you can. I mean, we we've got to pay our people, we've got to pay for the subscriptions and the accounting and all the things that we just talked about. We got to pay ourselves too, right? We don't we don't work for free. But in the beginning, plan to pay the business account more than yourself. I mean, you want to chunk away 10 to 15% of your gross monthly right into the business bank account. And that is your your rainy day because there are going to be highs and those are going to be great days and great weeks and great months. And there's going to be some lows. And you've got to be able to take care of yourself, pay the bills, keep the lights on, keep the software running. Absolutely. I can't I can't stress that enough. And you know, again, using our painting company as an example, we we had a really solid fall. We did close to 100,000 in in uh revenue, gross revenue, the first few months in business. And then you're right, somebody just unplugged the phones, it felt like. Of course, we had, you know, winter holidays. And so we literally had nothing for a couple of months. But I had to make sure that our software system was still running. I had to make sure that our marketing was still out, that we were still existed, right, in the eyes of homeowners. And we just continue to pay those bills through even though the well was drying up and we've we've gotten through it and now picking back up for the springtime.

SPEAKER_01 20:03

Yeah, it's kind of like a boxer. I mean, no matter how good a boxer you are, no matter how well you how good you are on offense, you're gonna get hit, right? And sometimes you're gonna get stung, and you're sometimes you might even get knocked down. And and so the reality is a business owner is much like being a boxer. I can have my game plan, I know how I'm gonna do this. What's Mike Tyson's wait? Everybody's got a plan until they get punched in the face, right? And so you have to prepare and and you have to just assume everything's going to be more expensive and take longer um to get going than you anticipate. Yep. It may get there, but it may take you a lot longer and it may cost you more than you thought it would.

SPEAKER_00 20:38

Absolutely. Yeah. And the next point here is overestimating your expenses. I think that is extremely important.

SPEAKER_01 20:44

Yeah, that it reminds me, I had a conversation. This has probably been 12, 13 years ago. It was an optometrist, and he went out on his own. He'd worked at, you know, one of the big, big uh optometry companies, and then went out on his own. And he was just starting out and got to know him and great guy. And I remember going back at the end of the first year, and I'm like, well, how'd the first year go? And he was like, Well, we were we were anticipating$600,000 in revenue. The good news we brought in$950, I'm like, wow, that's pretty good. He goes, Yeah, the bad news, we were expecting$500,000 in expenses, and our expenses were like$850. He goes, and and you, and I'm like, how do you spend$850,000 on a single location optometrist? He's like, well, inventory and all your staffing. And he goes, All that equipment, you know, that piece of equipment is this, and this one's this one's$10,000, that one's$50,000, and carrying costs and all that stuff. And then he starts going through stuff, and he goes, So we still came out okay, but boy, if we wouldn't have that growth in the if we wouldn't have brought in more revenue than we were participating, we would have been in real trouble. And uh so I think it's that's where you just have to go. You have to just know that it's going to cost you way more than you think it is, and things aren't going to go as fast, typically as fast as you think they're going to go. Sometimes you get lucky, but you

SPEAKER_00 22:00

can't play it on that. Be conservative with what your projections for your profit margin is. If you're thinking, you know, I'm gonna do this business and I'm gonna make 50% profit. Well you can't bank on that. Right. Or or do again, depending on the industry, 25% profit margin or 10%. So run those numbers, find mentors, uh, or you know, link up with with um others in in the industry um and and get coaching and advice on how you should look at your business. The next thing before we wrap up is review on a regular basis. Constantly be evaluating. And I can't stress that enough because every single month, have your hands in the mix, especially for the first, I don't know, Nick, couple years, maybe even five years, five years. The first five years is the most crucial part of starting a business and making sure that it's consistent and stable. So keeping the hands in the mix.

SPEAKER_01 23:00

Yeah. And I think it's, you know, you have to when you start expanding and bringing people on, you can trust them, but you still have to verify it. And so what you're looking for is saying, okay, the initial plan I had, the initial program we put together, how is that actually working out? Is it going as well, well, we thought we could charge these prices? Are those prices too high? Are they too low? You know, things like that. And I think sometimes business owners they get so wrapped up in like, well, this is my idea and everybody's gonna love it just as much as I am. And they misread the market. They misread what people are willing to spend on something and what the demand for something is or the appetite or the competition. And so I think you got to do your research and then you have to kind of I think you know several weeks ago we had Dwayne Nixon on and he talked about you know wanted to play the game he could win at so finding out okay yeah there's other competitors but where where can I special where can I specialize to do something that not everybody else is doing. And so I know as I rolled out this new business there's certain things that first thing I decided was I'm not going to be I am not going to be a remodeler. I am not going to be a flooring company I'm not going to be a roofer I'm not gonna be the guy running the day day to day things of the of the business right you know I'm gonna go sell the program and make sure things are running right but I'm not the guy out there turning a wrench and taking care of stuff. I might pop in here and there. But you have to decide what I'm not going to do which will lead you to what you are going to specialize in. And so this all starts with understanding that hey that might mean a little more money than you thought. It might mean a little slower might mean you're gonna you're gonna you know mess some things up and it's gonna just have to be quick to fix it. And I think that's why we want to get this topic out there. It just was really relevant in my life right now and it's been relevant in your life over the last six months. So we thought it'd be a good topic to kind of bring to everybody else.

SPEAKER_00 24:41

Yeah I want to pivot here.

SPEAKER_01 24:43

Those are all great points Nick but when when things get tight what's the first thing that people cut yeah they want to cut their advertising and marketing because they they're like I just I can save some money there and that's that's just that absolutely kills a business especially in the early phases they don't have a follow loyal following and that's the part that has to be has to be driven into even harder. Now they might say hey I can't pay somebody professionally to design those things I'm gonna do it myself. I maybe can't afford to do a big huge mailing campaign that cost me$10,000 but you know what I can go you know I can go to these networking meetings and go pound the ground that way and get my name out. So it may look different than what they anticipated but they cannot and under any circumstances cut the marketing and advertising in that growth stage.

SPEAKER_00 25:29

Yeah and I understand it's a double-edged sword you know darned if I do or darned if I don't it costs it everything costs but what you cannot do and I and I wanted to bring this up as we wrap up because the name of the podcast is your brand your backyard for a reason because we want our listeners we want local business owners to get exposure to build a brand to build their reputation to become reputable so what happens is is Nick when you when you turn the faucet on in your marketing right and you're you're on Google you've got your website you're doing some SEO you're doing maybe some Facebook some social media marketing you've you've wrapped your truck or your van you've got yard signs you're in some local magazines radios TVs like just name it all of it right so you start with the bang and then all of a sudden you can't afford that anymore and so you peel that way back or off the assumption for a consumer is that maybe they're they've gone out of business.

SPEAKER_01 26:29

Yep yep fair or unfair the perception is oh I used to hear a lot about them I don't hear anything anymore they must not still be in business. And so now you lose not only your current clients but you lose any potential new clients that don't even consider because they don't know you exist.

SPEAKER_00 26:44

And the word of mouth associated with that. So very good well Nick this has been fun. Again it's been a couple of weeks since we hopped on we've got uh fresh new topics that we're excited to come back here in the in the very near future Nick as always it's great to see you. Good luck in uh in your future endeavors and uh again no doubt that you're gonna build something special and for our listeners thanks for tuning in and until next time we'll see you Nick we'll see you listeners. See ya