Achieving the desired profitability and maintaining it over the long term is not an easy task: In order for your company to be economically viable, it is necessary to draw up an adequate business plan, to create solid financial planning and to control it fixed costs and business variables. As one of the main villains of profit and profitability, fixed costs must be fought with one efficient financial management. But how to achieve it? We’ve put together some guidelines to help you understand what expenses are included in this segment, how you can reduce them, and why they’re so damaging to your business.
Fixed costs do not depend on production
The definition is simple: fixed costs occur independently income generation of your company as they are not related to production. Even if the company does not market a product or sell a service, the fixed costs always remain. For the accountant and director of seville advice, Vicente Sevilha, fixed costs are very dangerous for the company because they are always there and do not change even if the company’s income decreases in a given month. For this reason, the big challenge for administrators and managers is to convert a large part of the costs into variables. To better understand these concepts, it is worth considering them individually:
Regardless of how many items your business produces and how many products you are able to sell, you must bear the operating costs infrastructure and logisticslike rent, InternetCleaning, conservation, surveillance, water, gas and electricity.
Is it like this combined with productivity of the company and vary according to what is produced and sold. Expenses such as raw materials, consumables, and overtime are some examples of variable costs.
This is how you reduce fixed costs
The best way to deal with fixed costs is to push them to the limit and look for the ideal cost/benefit ratio Optimization of all resources. That means spending as little as possible and getting the best to achieve the desired efficiency. That risk One of these practices, as you may already be imagining, is draining resources and hampering the productivity of the organization. There will come a time when it will be impossible to grow without it distribute these costs, be it because of the cramped spatial conditions, the overloaded telephone line or the overly busy professionals. Discernment is required at this point. to understand when fixed costs need to be increased, since these expenses generally do not follow growth linearly: they manage to produce a lot more or less with the same fixed costs. So you only need to change this value if growth is limited. Remember: profitability is achieved without wasting resources, with rational and optimized management. One of the best alternatives for those who want to monitor fixed expenses is to carry out monthly diagnoses regarding these expenses and try to relate them to production and reduce them as much as possible. If possible, try to negotiate favorable terms with your supplier, customer or service provider that affect your liquidity as little as possible. After this explanation, it is easier to understand why companies in financial crises or who need to improve their profitability, from the infamous “Cost reduction”: Essential for the sustainability of the business, cash control must be managed with efficiency and skill, otherwise the company’s internal and external image may be damaged or, in the end, the operations may be damaged.