To identify the differences between start up, operating costs, variable costs, and fixed costs. Managing Business Expenses In this leaflet I will be elaborating on the terms start-up costs and operating costs. I will provide examples for both cases and show the comparison between the two . Having done that I will also provide, in detail, definitions for both variable costs and fixed costs. Both accompanied by examples.
Start-up costs are incurred before a business operates to assure the person that they have everything covered to begin their business. Usually, when starting a business most of your money would have to be paid out in either buying a property or renting premises. I recommend that if you are a small business you make a start in just renting the premises.
The second cost you would need to make is the monthly bill of gas and electricity; this would cover you for the month and could give you a rough idea of how much you would be paying each month. Lastly, and most importantly you would need to pay out on buying equipment for your business. For example if you are to open a shop providing services, desks chairs and stationary equipment would be essential.On the other hand if you were to open up a business in providing products you would need to have a full stock, places to store them, and items to go with them(i. e. cutlery to go with tables and chairs).
Operating costs better known as expenses. This refers to both the monthly or weekly consistent payments that you would need to pay out for while your company is up and running. Say for example you were running a shop such as a bakery you would need to make payments each week or month for your favourite product to be produced because it is popular among your customers.
Each month it is essential that you continue to make payments for your rent otherwise terms could come to the worst and you would be out of business. As well as the rent heating, water, telephone, and electricity bills would be a constant pattern of payments. The difference between operating and start-up costs is as soon as you’ve made first payments for your start-up costs it is unlikely you would need to make them payments every month. Some of these payments can be either fixed or variable costs.
Fixed costs also known as indirect costs are payments that have to be paid regardless of how much money is produced. These costs need to be paid either weekly or monthly. Examples of variable costs would be the rent. No matter if your business is open or closed the rent will remain the same. The equipment you purchase stay at a fixed price as well, because you wouldn’t need to keep making payments for your equipment unless something breaks.
Variable costs are also known as direct costs. These are the payments that are made directly related to the amount produced or sold. Examples for this are the amount of products you make and sell if they become popular you would need to make orders for them each time you are low in stock. Another would be the electricity and heating bills, prices for these would depend on the usage. Total Costs: To find the total amount of money spent over a certain period of time you will need to add both fixed costs and variable costs. This will inform you of what your operating costs are.