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Most people who start a business know what they are selling. They have thought about the product or service, they have a sense of the market, and they have some idea of what they want to charge.
What they often have not thought through is what it costs to run the business itself. Not the product. The business around the product. And it is those costs, the ones that sit in the background and do not appear in the initial excitement of getting started, that tend to cause the most difficulty later on.
Edith Woodward, Associate Director at Carthy Accountants, works with businesses at every stage and sees the same pattern consistently. Here are the costs she finds most people have not properly planned for.
Most business owners know what it costs to produce what they sell. Very few have properly planned for what it costs to run the business around it.
Running a modern business means running on subscriptions. Accounting software, a project management tool, cloud storage, a communication platform, email marketing, design tools, scheduling software. Each one might cost £10 or £20 a month, which feels entirely reasonable in isolation.
The problem is not any individual subscription. It is all of them together. Across a small business, even a one-person operation, the cumulative monthly cost of the technology stack can be surprisingly high, and it tends to grow incrementally rather than in one visible decision. A tool gets added here, another one there, and before long there are a dozen recurring charges that nobody has reviewed as a whole.
Getting into the habit of auditing your subscriptions regularly, asking whether each one is genuinely earning its place, is a simple discipline that pays off. And as your business grows and cloud accounting software gives you real-time visibility of your outgoings, it becomes much easier to see exactly where technology spend is going and whether it is justified.
Insurance is an area where a lot of business owners either over-simplify or simply do not think it through at all until they need to make a claim. Understanding what you actually need, and why, is worth doing before a problem arises.
Employer's liability insurance is the only type that is legally mandatory, and it becomes a legal requirement as soon as you employ your first member of staff. Everything else is a matter of judgment, risk, and the nature of your business.
Professional indemnity insurance protects you if a client claims that your advice, service, or work caused them financial loss. For any business that provides professional services or advice, it is effectively essential even if it is not legally required. Public liability insurance covers you if a third party suffers injury or property damage connected to your business activities.
Two types that business owners frequently overlook are worth understanding before you need them.
Key person insurance covers the business against the financial impact of losing someone critical to its operation. For a small business where the owner or a key employee being unable to work would immediately affect income, this is not a nice-to-have. It is the kind of cover that determines whether the business can survive an unexpected event.
Relevant life insurance is a life insurance policy that can be paid for legitimately through the business rather than personally. For directors in particular, this can be a tax-efficient way to put meaningful personal protection in place while keeping the cost within the business structure.
Choosing the right insurance package depends on the nature of your business, your clients, whether you have employees, and your personal circumstances. The important thing is to think it through deliberately rather than picking up a generic package and assuming it covers everything.
This is the hidden cost that Edith finds most consistently underestimated, particularly among people who have come to running their own business from an employment background. When you have always received a salary, working out what your time actually costs as a business owner requires a different way of thinking.
The problem tends to show up most clearly in pricing. Someone making a product might price it at £150 because that is what feels right for the market, or because a competitor charges roughly that amount. But if making that product takes 20 hours and the only labour involved is their own time, the base cost at minimum wage alone is already more than £200. Before materials, before overheads. and before any consideration of profit.
Pricing at £150 in that situation is not a competitive choice. It is a loss on every single sale.
Service businesses face the same issue differently. If you are billing clients by the hour or the day, but have never worked out what your time needs to generate to cover your salary, your overheads, and a profit margin, you may be fully booked and still not building the business you wanted.
Valuing your own time properly, and pricing to reflect that value, is one of the most important financial disciplines a business owner can develop. It is also one of the clearest areas where sitting down with an accountant and working through the real numbers can make an immediate, practical difference.
Technology costs, insurance, and the value of your own time are three areas where the gap between what business owners assume and what they actually spend can be significant. None of them are complicated once they are in front of you. The difficulty is that most people only discover them when they are already causing a problem.
In Part 2 of this conversation, Edith covers professional service fees and the practical steps for building a budget that reflects the real cost of running your business. Link below once published.
In the meantime, if you would like to talk through your own numbers, we would love to help.
Get in touch: carthyaccountants.co.uk/contact
A short conversation now can save a significant amount of difficulty later.
