As a business owner, you probably have a huge list of goals you are looking to achieve. Goals are incredibly important, and most entrepreneurs continually assess their enterprise’s project to see if the goals they have set are on target to be met. This kind of goal-focused approach helps to ensure that a business is always moving forward, rather than floundering through lack of direction.
For the most part, entrepreneurs tend to create goals that are focused on the business itself: for examining, aiming to achieve a certain turnover value or expand into a new area. However, there are other goals – that focus more on business operations rather than results – that are worth considering. One of the most important of these operational goals is to aim to achieve static costs.
What are static costs?
Every month, a business will be required to meet its costs. Many of these costs are naturally fixed; the cost of your premises, for example, or your utility bills.
However, some of these regular costs are not fixed; they are variable, depending on what is necessary at any point in time. Wages, for example, can be variable; if you need to hire extra seasonal workers, then your wage bill will vary substantially throughout the year. Variable costs also include provision for reparations to business areas such as IT systems or business premises; if something breaks and is in need of repair, these costs will be higher than they would be in a month where nothing breaks.
If you aim to achieve a high percentage of static costs in your business expenses, then you are essentially aiming to pay the same amount per month for as many services as possible.
Why are static costs beneficial?
If you know exactly what you have to pay for a variety of services every month, then your budgeting and forecasting is all the more likely to be correct.
Let’s say that you imagine your costs for the month will be $10,000. Some months, you will have no variable costs – you don’t need to fix an IT system or hire extra workers. In those months, variable costs seem preferable.
However, the next month, you have your usual costs of $10,000 – but your IT system malfunctions and requires expensive repair work, your office bathroom suffers an electrical fault, and you have to hire more workers unexpectedly. In this kind of month, your costs could easily double, and with relatively little notice. This kind of sudden need can put a real strain on your business’ finances.
Setting a goal to achieve as many static costs as possible helps to prevent the kind of financial shock described above. A surprising number of costs can be fixed; you can opt for a fixed-cost outsourced IT support service, buy a maintenance coverage plan with a trade company, and even hire more workers full time. By fixing these kinds of variable costs, you hugely reduce the possibility of suddenly encountering a month where you have to find the funds to pay for a variety of services on a one-off basis.
Setting a goal to fix the cost of many of your business expenses may sound unusual, but can actually present an excellent method of managing your business finances. As a result, your business will be more secure, and you are all the more likely to hit the rest of your business goals too.