Understanding the Importance of a Business’s Running Costs

Working to a budget is a reality of life as a business owner. You can only do as much as your bank balance or overdraft will allow. For new business owners who are not yet familiar with the concept of running costs, there is a lot to understand. What are the most important costs, what makes them the price that they are and can they be reduced in any way?

The typical business will have several common expenses, the first of which is staff. Either by paying yourself a salary or hiring someone else to do tasks like admin, someone needs to be paid to do work. Salaries are often the biggest running cost a business will have to cover, but is arguably the most important.

Budget-wise, the average UK startup business spends £22,756 in its first year. If you pay yourself, most of that money will come in the form of a salary, but what other expenses should be accounted for?

Office and Transport

Office space is usually the second biggest expense, unless you are running your company from home. In most cases, renting an office or warehouse would involve making weekly or monthly payments. For accounting purposes, this is extremely useful, as the amount paid in rent would be unlikely to change over at least a 12-month period.

The cost of transport can be a little more difficult to calculate, whether it’s for meeting clients or delivering goods to customers. The price of fuel fluctuates on a daily basis, while there are costs besides buying a company vehicle such as insurance and maintenance to consider.

Getting value for money is important for keeping down car running costs. This means finding the cheapest or best-value insurance policy, seeking the cheapest gas station and, most importantly, the best vehicle you can afford. Looking out for hidden costs like servicing is also useful.

Utilities and Raw Materials

Regardless of where you run your business, a running cost you will have to pay for is energy. Without it, you would not be able to run a computer or make your products. Like you would with transport and office space, it is possible to find a cheaper deal. The average electricity bill for a small business in the UK is £5,100; switching to another tariff could slash that cost.

Finally, there are the raw materials your business may need. If, for example, you run a printing business, look for the cheapest paper and ink you can buy. It is worthwhile to look at different suppliers’ costs before choosing one. Should they hike up their prices, do not be afraid to take your business elsewhere.

Image: TheDigitalWay


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