Fixed costs have to be paid on a recurrent basis, and have a direct impact on your business operations. The break-even point for a business, that is, the revenue the business needs to make to stay open and in the green, essentially takes into account your fixed costs.
Unlike variable costs, that can change from month to month and are directly impacted by your production volume, fixed costs generally remain the same. You may see slight increases or increments in what you’re paying as your fixed cost over the years, mainly subject to inflation. Usually however, fixed costs are predictable and remain unchanged.
What Are Your Fixed Costs?
If you’re running a business, then you’ll need to spend both on business operations, as well as product manufacturing and development. Your business operations include all those facets that go into helping you maintain and run your business, and largely include fixed costs. Fixed costs for a business can include:
- Tax payments
- Marketing and advertising
- Labor costs
- Licensing and membership fees
- Interest payments
If you’re unsure about what your total fixed costs are, then you will need to seriously consider finding out. Calculating what your current total fixed costs are can help you discover where money is ‘creeping’ out. This ‘creep’ refers to chinks in your financial management strategy that need to be addressed as early as possible. These are areas where you can potentially save money, and which in turn can boost your net income.
To calculate your total fixed cost, you need to first gather all your financial statements, bank and credit card statements, accounts, books, invoices, and other financial data. Isolate expenses that you have a prior and established commitment towards. These are your fixed costs. Fixed costs, in general, tend to be long-term commitments, fueled by a contract or a schedule. Say you took out a business loan when you were just starting out as a business owner. When you secured your loan, you agreed to pay back a certain amount at pre-established intervals. The amount you agreed to pay back each month will fall under your fixed costs.
How Can You Reduce Your Fixed Costs?
Between fixed and variable costs, fixed costs tend to be harder to reduce. This is as business owners already have financial commitments, such as through loans, taxes, leases, etc., that they must pay back. Despite this, there are several ways you can try to reduce the fixed costs associated with your business.
1. Save on Renting or Leasing Property
If you need to pay a monthly rent to use your commercial office space, then that is a decision you may want to reconsider. Is your office space enough for you and your employees? Is it too large? Can you find a more affordable commercial space for your business operations?
Alternatively, you can also consider asking your landlord for a better rent agreement. If you have built a good relationship with your landlord, they may provide you with a better deal.
2. Tax Management
Business owners should consider always paying their taxes on time. But if you want to reduce fixed costs related with taxes, then you need to do more than meet your recurring tax obligations. Many businesses can make use of tax deductions that are specifically available for them. You can also look into what kind of employee deductions are available.
By being aware of, and making use of all the deductions available to you, you may end up paying less in taxes overall.
3. Limit The Number of Hired Employees
If you need to hire more employees to manage your business operations, then you need to pay more people full wages as well. This can have a direct impact on your net income.
That’s why you should consider only hiring new employees when business profits allow it. If you can’t afford to hire all multiple employees, then having them on your payroll will cut away at your business finances. Remember that you need to keep paying your employees every month, irrespective of how well or how badly your business is doing.
Alternatives to hiring new employees include working with entry level employees, outsourcing work, or even hiring people on a project-by-project basis. The lower the number of people you have on your payroll, the more revenue you’ll have left for your business expansion and growth.
You can also consider remote working for employees who don’t absolutely have to be at the office to work.
4. Save On Resources
There are various options available to business owners when it comes to resources needed for daily operations. A proper cash flow management software can record various financial details and data about your business. This makes it easy for you to retrieve that data any time you need to.
By switching to digital records, you also save on paper. Over time, paper as well as storage spaces for paper eat up into both your office space, and your fixed costs.
You can also consider making use of cloud computing services. With the help of cloud computing, you can immediately start to make use of various advantages, such as receiving updated business applications as soon as they become available. You will also receive support and help when it comes to managing your data on cloud servers.
If you lose data, then that will be recovered for you. This allows you to find help with, as well as reduce ongoing costs associated with IT services.
Many business owners turn to startup and business loans as a way to get their business off the ground. If you’ve been struggling with your loans or mortgage payments, then refinancing them may be the solution.
If your business is particularly suffering from various expenses related to debt and debt management, the turning to debt consolidation can help alleviate your burden.
Fixed costs tend to remain unchanged, although they can increase over time. You can find out what your fixed costs are by analyzing how you’re spending money every month. You can even make financial projections using your total fixed costs to create your average fixed costs. This lets you know how much you can expect to spend on fixed costs in the future.
Although fixed costs are often dependent on prior contracts, agreements and schedules, your expenses can still be reduced. If you follow these tips, you’ll be able to reduce your fixed costs in no time. This helps you protect your finances, as well as your business. Public liability insurance can also help you protect your business.
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