In a business, in addition to knowing the income it is necessary to know which expenditure has an impact on the generation of profits. A company's fixed and variable costs must be recorded and analysed in order to determine whether they are necessary or dispensable., The Commission has also identified a number of issues that need to be addressed, whether they can be cut back in some cases, or whether they can be managed in ways that are more advantageous to the organisation's finances.
The definition of fixed costs is «any expenditure that does not change from period to period». This makes clear the main difference between fixed and variable costs of a company. The former would include the payment of mortgages or rents, utility bills or loan repayments..
In the case of fixed costs, the amounts may vary slightly, as in the case of supply costs, although it is always clear that they are due on a regular basis.
Among the most common expenses in this group are the following:
These expenses are paid each month on specific dates and in specific amounts. They are easy to manage, The payment can be planned as an obligation to be met on a monthly basis, as very often the amount paid for these will be the same each month. Taking note of these fixed costs helps businesses to planning next year's budget properly, as well as projecting sales revenues.
The disadvantage of fixed charges is that they cannot be easily changed. Thus, arrears or oversights that result in non-payment could cause problems such as late payment charges, eviction, legal action or interruption of utilities. On top of all these, there is the additional disadvantage of a bad image for the defaulting company.
Variable costs can also be important, although the company has more choice in how much it spends and when it spends it. This type of spending can vary in amount from month to month, and this makes them the most appropriate option for making changes in the way money is used. It is much easier to reduce expenditure on variable costs.
One of the main sources of variable costs in business is the fluctuation in sales during different periods and times of the year. This can cause raw materials, utility bills and overtime costs to vary greatly as well. When doing financial planning for the business, it is important to look at the annual total of all expenses for both categories during the year and calculate an average for a monthly estimate of expenses. In addition, savings-enhancing solutions should be incorporated into this plan.
Petrol Ticket facilitates the achievement of this objective by unifying all refuelling invoices into a single invoice, which facilitates VAT refunds, and, in addition, securing discounts on every refuelling at all service stations in the network.
Do you already know how to rationalise spending on fixed and variable costs in a company?
