Expenditure budget

Expenditure budget Once you have drawn up your sales budget, you can begin to work out your costs. VAT-registered businesses should calculate costs excluding VAT.
2.1 What fixed costs will you have?

Expenditure budget

Once you have drawn up your sales budget, you can begin to work out your costs. VAT-registered businesses should calculate costs excluding VAT.

2.1 What fixed costs will you have?

In other words, which costs must you pay, no matter how much you sell?
– Rent, rates and insurance.
– Phones, Internet and computer costs.
– Interest charges.
– Maintenance and repairs.
– Electricity, gas and water rates.
– Staff wages and expenses.
– Advertising.
– Administration (eg accountants? fees).
– Depreciation of equipment, furniture and other fixed assets.

You will need to know what your fixed costs are, so that you can calculate what volume of sales you need to break even. In other words, if your gross margin is 25 per cent, sales must be four times as large as fixed costs, just to break even.

2.2 What variable costs will you have? In other words, which costs will grow or diminish in line with sales?
– Raw materials.
– Distribution.
– Advertising.
– Extra staff costs, for overtime or temps.

2.3 Are any of these fixed or variable costs likely to change?

The expenditure budget will be far more useful if you separate out fixed and variable costs.