- Fixed Costs: These are costs that you can’t easily change from month to month such as rent, insurance premium, loan payment or lease. They remain the same whether or not your sales rise or fall.
- Variable costs correlate with sales volumes. You will be more likely to be able to cut variable expenses if you’re short on cash, because many of these are discretionary. Classify recurring variable expenses you can’t easily cut, such as utilities, phone bills or labor, differently than variable expenses you can’t modify, so you can quickly find places to cut when the need arises.
- Semi-variable costs are fixed costs that are variable when influenced by volume of business. These can include salaries, telecommunications, and advertising.
Written By @oyinnlola You have to figure out how to spend money before you can make it. Yes, you got that right. It is just the same as saying “Failing to plan is planning to fail”. A budget is a plan to control your finances. It is an unpleasant experience to run out of cash and fall short of payments. You want to be sure that you can meet your current goals, and plan for future ones as well. Budgeting is the most effective way to ensure your business has a future. It allows you to control your cash-flow and make provisions for larger costs, and helps to know the right time to invest or expand. It is necessary to know how much and where your budget is allocated at all times in order to stay in control of your expenditure. A budget can be designed to be weekly, monthly, quarterly or annual. There should be at least a general budget that captures projected expenses and sales revenues. A new business is likely to spend more than it earns and become insolvent without a good budget. The major components of a budget should include Income, Expenses, Profit (see resources for more components of a budget) Income: This is one of the two main components of a budget or better still a budget’s “cornerstone.” The estimates should be made to be as accurate as possible while being conservative. Try to do some market research and benchmarking if you are not sure. You could also use knowledge gained from a previous job. Expenses: This is the second main component of a budget. You will have to come up with figures that will show how much it will cost your business to earn the income. You might need to brainstorm to ensure that all costs to be incurred are factored in. This is easier if you have financials for a previous year. Expenses can be divided into these categories: