Unit 3 Financial Forecasting for Business Aim 1: To understand the different types of costs Aim 2: To know examples of each type of cost

To know the four types of costs that are incurred by a business. What are costs? According to BBC Bitesize “Costs are the expenses involved in making a product. Firms incur costs by trading.” Start-up costs Operating costs Fixed costs Variable costs

Start up costs Start-up costs Money spent by a business before trading begins. Often the time of greatest expenditure. What does a business need to spend money on to get started? Can include: Premises, equipment, stock, research fees, licensing fees, marketing, staff and utilities, vehicle lease/purchase

Operating Costs Operating Costs What the business spends money on to keep trading. What does a business need to spend money on to stay in business? Can include: Stock, rent/mortgage, utility bills, salary/wages, marketing/advertising, vehicle fuel

Fixed costs Fixed costs These do not change with a change in use . They may increase or decrease over time. Which costs we have discussed are/ can be fixed costs? Premises Rent/Mortgage, Salary, Utilities (fixed contract) vehicle/equipment lease, business rates

Variable costs Variable costs These costs go up or down depending on how much they are used. What examples have we discussed? Utilities (metered) wages (hourly/daily etc) stock, vehicle fuel, stationary (paper/stamps etc)

Conclusion There four main type of cost Start-up costs Operating costs Fixed costs Variable costs Often overlap Important to control high costs = lower profit Fixed costs hardest to control but the best for your business. Variable costs easier to control but less effect.