Developing a budget is a business best practice. Budgets
provide accountability month-to-month and ensure that you give some realistic
thought to your expenses. Before finalizing your budget, there are some
variable and semi-variable business costs you should consider.
Utilities
Budgeting for utilities poses a particular challenge because
so many factors influence the bill. Weather, employee habits, and types of
equipment all drive the bill up or down. In a leased space, you’re stuck with
the HVAC units the landlord provides. Older HVAC is usually less efficient and
costs more. Average utility cost estimates for a space give you a general
baseline, but won’t necessarily reflect your bills. Padding your estimates for
utility costs, especially the first year or two, helps you avoid a nasty
surprise.
Shipping
Shipping is another area where costs prove unpredictable. On
one level, your total shipping costs hinge on your total sales. Lower sales
means you’re shipping fewer units and shipping companies charge more for that.
Higher sales push your costs up, but give you room to negotiate a better
per-unit rate. Fuel price variability alters shipping costs, even if you ship
the same number of units every month.
Prices will also vary based on how fast you need your shipments to
arrive. For example, air
freight in Houston will cost you a bit more than truck services. You cannot
reliably predict all of those factors, but forecasting helps you develop a best
guess about future sales volume and lets you ballpark a shipping budget.
Marketing
Marketing is a strange combination of predictable and
variable costs. For example, the cost of running the same print ad in the same
publication is predictable. That cost remains stable, regardless the total
number of eyes that see the ad. The costs
of other forms of marketing, such as sending product offers to your
newsletter email list, depend a great deal on popularity. Email autoresponder
services, such as Aweber and GetResponse, charge monthly fees based on the size
of your list. The more popular your newsletter, the more it costs you to send
it.
IT Infrastructure
The increasing trend toward automation makes your
information technology infrastructure an ongoing cost concern. You may discover
that the hardware and software combination that supported 200 customers can’t
scale up to handle 1000 customers. If you anticipate rapid growth, you need a
sufficient IT budget to support hardware upgrades and licensing scalable
software solutions.
Budgets offer the benefits of accountability and force you
to examine your ongoing costs. Before you finalize your budget, be sure you’ve
given serious consideration to uncertain costs that can throw your budget off,
such as utilities and IT infrastructure.
In conclusion, developing a comprehensive budget is essential for any business to effectively manage its finances and ensure long-term sustainability. While budgets provide a framework for accountability and help in making informed financial decisions, it's crucial to consider variable and semi-variable costs that can significantly impact the bottom line.
Variable costs, such as utilities and shipping expenses, pose challenges due to their fluctuating nature and dependency on external factors like weather conditions and sales volume. By padding estimates and forecasting future trends, businesses can better anticipate and mitigate potential surprises in these areas.
Similarly, semi-variable costs like marketing and IT infrastructure require careful consideration, as they combine both predictable and variable elements. While certain marketing expenses may remain stable, others depend on factors like audience reach and technological advancements. Anticipating scalability issues and allocating sufficient resources for IT infrastructure upgrades are vital to support business growth and efficiency.
Incorporating these uncertain costs into the budgeting process ensures a more accurate financial plan and helps businesses adapt to changing circumstances effectively. By acknowledging the dynamic nature of business expenses and proactively addressing potential challenges, organizations can optimize their budgeting strategies and enhance overall financial performance.
