8 Overlooked Factors Impacting Your Organization's Success

Running a small business requires courage, but it also carries hidden costs and risks that can quietly undermine profitability. By identifying and addressing them, you can build a stronger, more sustainable company that thrives even in uncertain conditions.

5 Costs That Impact Small Businesses

When most entrepreneurs think about “costs,” they immediately consider rent, payroll, or materials. While important, there are other fundamental costs that often go unnoticed—yet have a major effect on profitability.

1. Sunk Costs

• Definition: Money already spent that cannot be recovered (e.g., past payroll, outdated renovations).
• The Risk: Falling into the sunk cost fallacy—continuing to spend more time or money on something just to justify earlier investments.
• Example: Retaining an underperforming accountant despite repeated costly mistakes.

Solution: Don’t chase sunk costs. Cut losses quickly and move forward with smarter investments.

2. Opportunity Costs

• Definition: The value lost when choosing one option over another.
• Example: Spending $100K on new equipment means you forgo the potential ROI of investing the same amount in software.
• Challenge: Difficult to measure without expert financial analysis.

Solution: Use strategic planning and outside expertise to evaluate investment trade-offs.

3. Variable Costs

• Definition: Costs that fluctuate based on market factors (e.g., raw materials, shipping, labor shortages).
• Risk: Makes cash flow and profit forecasting challenging.

Solution: Build flexible financial plans that account for cost fluctuations, ensuring your business can withstand volatility.

4. Operating Costs

• Definition: Day-to-day expenses required to keep the business running (e.g., rent, utilities).
• Risk: These are unavoidable, so they can quietly drain profits if unmanaged.

Solution: Seek expert advice on optimizing or reducing operating costs without sacrificing functionality.

5. Controllable Costs

• Definition: Short-term costs you can adjust, such as R&D, business travel, training, and salaries.
• Risk: Overspending in these areas reduces flexibility.
• Benefit: With oversight, these costs can be strategically adjusted to free up resources.

3 Risks That Threaten Small Businesses

Costs aren’t the only danger. Risks—both external and internal—can put your business in jeopardy if left unaddressed.

1. Macro Risk

• Definition: External forces like politics, natural disasters, wars, pandemics, or regulatory shifts.
• Challenge: Largely outside your control.
• Solution: Proactive planning and forecasting (with professional support) help reduce vulnerability.

2. Tax Risk

• Definition: More than just an IRS audit—it includes reputational damage, regulatory penalties, and financial strain.
• Risks include:
  • Late or incorrect filings.
  • Over-aggressive deductions.
  • Paying taxes as an unavoidable operating cost rather than strategically managing them.

Solution: Work with a tax strategist to optimize deductions, plan payments, and minimize audit exposure.

3. Key Person Risk

• Definition: Over-reliance on one employee or leader whose departure could disrupt operations.
• Risks include:
  • Limited negotiating power on compensation.
  • Bottlenecks in expertise or decision-making.
  • Increased vulnerability if the individual leaves.

Solution: Diversify expertise by engaging external professionals (e.g., outsourced CFOs or bookkeepers) and reduce dependency on any one individual.

The Good News

The costs and risks your small business faces aren’t unique—and the right experts can help you manage them effectively. Experienced bookkeepers, accountants, and CFOs can reduce risks, control costs, and provide the clarity you need to grow confidently.

If you’re determined to make your business more profitable, sustainable, and easier to manage, LedgerWay’s team of finance professionals is here to help. Contact us today for actionable insights tailored to your goals.