Manage your variable expenses to effectively forecast budget and expenditure
Businesses often focus on fixed expenses such as rent, salaries and wages, machinery, vehicle and insurance, among others. However, it is also important to look into your variable expenses as these amounts can accumulate over time and make a significant impact to your bottom line. These unexpected expenses can disrupt your budget and cash flow.
Variable expenses are those related to operating costs like car expenses, utilities, professional services and office supplies. They are also associated with the cost of goods sold related to production such as sales commissions, labor costs and raw materials. Discretionary costs, on the other hand, are those that can be controlled, such as Christmas parties and staff bonuses.
Make sure you account for the variable expenses by fixing costs where practical. You can negotiate with your suppliers for a fixed amount instead of a variable one. In doing this, it may cost you a bit more each month but at least it will give you some control over your budget.
You can also review your expenditure on variable costs from the previous year to determine a baseline which could then be included in the forthcoming monthly budget. Follow a pattern of seasonal variations in your budget as well. Once you have an idea of how much you have previously spent on variable expenses, you can then add an extra 3-5% on top of your estimate to help account for unexpected costs and price increases.
Remember to stick to your budget. Setting a budget is important but you should review it against your actual spending’s each month to determine if you are on the right track. Having money on hand for your variables is also important so create a bank account where you can deposit these funds. You may also have a business line of credit dedicated for emergencies. Plan on how to deal with your variable expenses so you can avoid them having a negative impact on your business.
As you look for different ways to grow and improve your business, seeking professional advice from a business consultant could prove to be an important and helpful decision.
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