Even though your opening weekend went from a projected $20,000 to $10,000, you will still have to pay these expenses. Your insurance and payroll expenses are fixed. However, you call and reschedule the guitarist (he’s grateful because it’s hard to strum with frozen fingers). Still, you must pay your insurance and your horticulturist despite the cold weather. This April, historic cold temperatures hit, and snow is falling on what is supposed to be your opening day. You pay the guitarist $175 for each day he plays. To give your customers the best shopping experience, you contract with a local guitarist to perform every weekend during the gardening season.Your insurance expenses are $1,000 per month.You employ a horticulturist and pay her a salary of $40,000 per year.Let’s say you own a greenhouse and these are your projected expenses:

In addition to the brief fixed expense examples in the section above, let’s walk through a hypothetical situation. But even though they are easy to budget for, they are also the hardest expenses to reduce in response to decreased sales or restricted cash flow. In other words, your profit and loss statement will show the same amount for the depreciation expense (or amortization expense, if the asset is intangible) every month of the year, for every year of the useful life of the asset, until the asset is fully depreciated or removed from service.įixed expenses are the easiest to budget and plan for because you know they will be the same every month. Even though these expenses don’t directly impact your business’s cash f l ow, they are still considered fixed because they affect your business’s profitability, and the amounts typically don’t change over the lifespan of the asset. You might be surprised to see depreciation and amortization listed as fixed expenses. Some utilities, especially if you enter into a fixed pricing arrangement with the utility company to “normalize” your payments throughout the year.More commonly, they remain the same for several years. While fixed expenses typically don’t change, if a fixed expense does change, it typically happens on an annual basis and during a renewal period. These expenses differ from direct costs-often called cost of goods sold -because they don’t go into the production of your product or the delivery of your service. What Is A Fixed Expense?įixed expenses are a type of overhead expense, which is essentially the cost of operating your business.

Other expenses stay the same, regardless of whether you have a spectacularly good-or spectacularly bad-sales month, and those are your fixed expenses. We’ll take a closer look at fixed expenses here. Understanding your business’s expenses isn’t simply monitoring the amount of money you pay out each month, but also noticing the type of expenses.Ĭertain expenses-like cost of goods sold and variable expenses-change depending on your sales volume, total revenue, or other business activities. Part of expense management is knowing how the different kinds of expenses in your business impact your cash flow and profitability. Expenses like rent or mortgage, insurance, salaries, and some utilities fall into the category of fixed expenses.Įxpense management might be the least exciting part of owning and running your small business, but exciting or not, it’s a key part of accounting and is crucial to your business’s financial health and profitability. After all, seeing the money come in is much more satisfying than watching it go out in the form of expenses. Fixed expenses are those expenses that stay the same regardless of your sales or business activity and can have a significant impact on your cash flow and budget.