Before you open your doors to new customers; before you even go looking for potential investors and start-up capital, the first step to operating a successful business is a sound business plan. One of the most important aspects of any business plan is the careful costing of the operation.
From industrial production line factories to solicitors or independent consultancy services, every business incurs cost through its activities. By carefully managing your outgoings you will be able to determine the profit margins which dictate sales prices, and create the opportunity for expansion and growth. Costs for any business can be split into two main types: fixed and variable costs.
Fixed Costs Fixed costs are those expenses which remain unchanged regardless of productivity or business activity. These costs will comprise the bulk of your initial outgoings when you start your company. Fixed costs range from property and assets to individual salaries. Here are some to consider:
Market research A crucial stage in any business plan, market research is a necessary expense. From your research you will learn where to find your customer base, identify your close competitors, and discover market prices for the goods and services you offer.
Accounting Whether you are turning over millions of pounds or a more modest sum, you need a professional accredited accountant to ensure your book keeping is accurate.
Property Your business will almost certainly require premises of some description: be it a single office, an industrial scale factory, or warehouses for storage.
Salaries The wages you pay your workers are a fixed cost: you have to pay their salaries whether your company is producing goods or not. Hopefully, by the time you require the services of a workforce you will already have a product!
Fixed assets Fixed assets covers all the fittings, furniture, vehicles, equipment, machinery and computer software required to make your business operational.
Variable Costs Variable costs refer to all those outgoing expenses whose total is dictated by the productivity of your company. If you produce one hundred units then your variable costs will be higher than if you only produce fifty units. Variable costs are typically those expenses which most directly reflect the consumption your business requires to remain operational.
Materials As you produce more, you consume more. Whether you are a manufacturer or a lawyer, your business requires raw materials be they paper, plastics or fabrics. The cost of materials is always a direct factor when calculating the unit price of your goods.
Utilities Your business activities will determine how much energy and water you consume. As more suppliers move towards metered tariffs, the variability of these costs is more closely linked to activity than ever before. It is no wonder that energy and water saving initiatives have become such big business in their own rights in recent years.
Fuel No matter your business, greater productivity will almost certainly result in higher fuel consumption. Whether it is for delivery of your goods to retail outlets, or petrol for your own car to reach consultancy meetings, productivity requires fuel.