These can be significant, such as the cost of ingredients or supplies if running a restaurant or café, or smaller such as the costs of paper and presentation materials if running a consultancy. Materials – The cost of the raw materials used to manufacture or create your product. Variable costs increase the greater the output of your business and decrease when output falls.įor example, if you have a cake-making business, variable costs include buying ingredients and cake materials such as cases and boxes, distribution costs such as delivering cakes to customers, and marketing costs such as advertising in local newspapers. Variable costs vary depending on how many products your business sells. With each fixed cost, try to work out how much the cost will be as both a monthly and an annual sum for your business’s financial year. It’s worth itemising each of these costs on a spreadsheet. Depreciation – If you purchase equipment, for example office computers, this is a capital expense and you’ll need to factor in its depreciation over a set period (usually three years).Include costs such as company vehicle leases and any equipment that’s hired over a period of time, such as leasing an office photocopies, and that require regular payments over a contracted term. Insurance and loans – Liability and professional insurance, and loan repayments along with interest.Utilities – Costs for electricity, gas, telephone services, broadband, water and rates that are not affected by sales volumes, such as a fixed monthly mobile phone contract.Exclude commission that is directly linked to sales or production levels but include NICs, pension contributions and benefits (known as ‘on costs’). Payroll – For salaried staff, regardless of output of the business.
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