It can be hard to keep up with the ever expanding list of expenses your company forks out for. Maybe one month you’re spending highly on packing and postage, maybe another month your payroll hours are off the charts – either way, expenses can change quickly, and it’s hard to truly nail down the where and why such a rollercoaster occurs.
However, that doesn’t mean you’re in an impossible spot. You can take some time to really discover how your expenses work, and all you need to do is sort them into the three categories below.
Work Out Your Fixed Expenses First of All
Your fixed expenses are the bills that never change, even if you’re selling more one month or producing less the next. You pay the same amount every time, and it’s a recurring fee you’re always going to have to fork out for. The amount you’ll need to pay any salaried employees, for example, is a fixed expense – you have to pay the same wages every single accounting cycle.
Similarly, insurance premiums and the rent you pay for the use of your office are fixed expenses as well. So go through your books right now and see how many fees stay the same over time; if one has changed maybe once or twice, you can put it into the variables pile.
Think About the Variables
Variables are the expenses that change from time to time, directly relating to how much your business has operated in the current financial period. For example, maybe one month your procurement needs are going to be a lot lower than the average for the other months of the year; many businesses find that they spend less on supplies in the winter season, albeit before and after the Christmas period.
So, that’s one major variable you’re going to have to account for. Now this leads onto another big variable for companies: packaging and shipping costs. The less you sell, the less you’ll have to spend on logistics, and vice versa. Similarly, the money needed to keep water running and the lights on is also going to vary, but you should always have an average price range to inform you about what you need to make/save to pay bills like these.
Keep Periodic Payments in Mind
Finally, you need to think about the periodic payments your business comes up against. These tend to be emergency related, and you’ll have to pay them as and when they happen, which can be very hard to predict for.
Something like a lawsuit leveraged against your company is technically classed as a periodic payment, and expenses like these are going to need to be saved up for. Even if you can’t spot any on the books right now, try to make sure you have at least 12 months operating profits in the bank to deal with them.
Take charge of your company finances, and never let your spending get the better of you again!