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Running Costs Add to toolbox

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Its crucial to control your working capital and operational costs. 

Working capital  is the money that you have to spend on the daily running of your business, such as paying off suppliers for the materials you have bought to make your product/service.

Operational costs are the expenses that you need to make on daily basis in order to run your business. These can be both fixed and variable costs, examples include, staffing costs, project costs, marketing etc.

The best way to control them is to establish a culture of responsible spending in your business, especially if you start out with a partner. Costs of small items add up and have to be accounted for.

Forecasting and budgeting your costs is a useful exercise, as it will allows you to prepare and put money aside for certain months that may have more costs than at other time. This is often the case in small business, especially as you start to grow and gain more sales. This can be because more sales could encourage more investment into technology or projects. which is another cost, but waiting for the money from sales to come in may take a while, depending on your customer terms for payment. 

There are two ways for a business to create profit:

  • Sell more or increase your prices
  •  Keep prices the same but reduce the costs of producing your product/service (without reducing the quality) 

Being more cost efficient will allow you to use different pricing strategies and can make you more competitive, hence why companies are always looking for way to cut costs.

Other factors to consider:

  • Choose pricing strategy with room for manoeuvre: changes in the economic environment such as an inflation in price or a recession may increase your costs
  • Importing/Exporting will require careful monitoring of exchange rates to ensure you still able to make profits and cover expenses

This type of financial management is key in business, although its not difficult it requires time and attention to detail.

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