Fixed Costs

Setting a Budget (1)To put together the most accurate budget possible, first start by focusing on what you can predict. You will always have set costs. Focus on these “fixed” costs that are not likely to fluctuate on a monthly (or yearly) basis. Once you’ve identified these fixed costs, built out a series of scenarios related to those costs. In these scenarios, identify which fixed costs can be eliminated in a worst-case scenario. For example, if your sales pipeline doesn’t materialize or if funding dries up, do you really need physical assets such as computers, monitors, and office equipment, or even the office itself? Can any of this be sacrificed?

As part of this fixed cost analysis, attempt to justify all of the costs you have in your budget. Do this verbally (out loud) to other members of the venture. This will help you to build a stronger argument regarding which costs are necessary. If you can’t convince your employees, investors or even yourself that a fixed cost is necessary, get rid of it. If the cost is necessary, but the funding, or sales, doesn’t justify its expense, lay out this argument to the group.

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