We have looked at the fixed costs that will be incurred in your business. We understand that a fixed cost in one business can be a variable one in another. What you must identify is where the cost varies with the volume of sales.
If you are running say a road haulage business, your fuel and oil costs will be variable, depending on the loads you carry for your customers. If you are running a retail outlet, then the costs of the goods you have sold, not the cost of the good you have bought, represents your variable costs.
Therefore when you calculate your sales projection you should also calculate the variable costs that will be incurred while making these sales.
On another point you will have to actually work out when you will be require to pay for these extra costs. Will it be before you get the money in for the sales made because this could have a huge impact on your business.
Next Article – Capital Expenditure and Liquidity
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