One of the main aims of a business is to make a profit.

However all business activity costs money.

Business costs include:•Raw materials and components•Wages and salaries•Electricity and power•Factory and office costs including rent•Others i.e. market research, advertising, etc

If the revenue of a business is less then its costs, it has made a loss.

The money the business receives in return for the services it sells is its revenue.

If the revenue of a business is more than its costs it has made a profit.

The costs of a business fall into two areas:

RUNNING COSTS – which are the costs that the business must meet in the course of the day-to-day process of producing and selling its products.

START-UP COSTS – which are the costs that the business must meet before it starts producing and selling its products.

COSTS

START UP COSTS RUNNING COSTS

Market ResearchPremisesMachineryFixtures & Fittings

AdvertisingRent & ratesPowerRaw materialsWages/salaries

Start up costs

Market Research•finds out what customers’ want•may be carried out by the business itself or by an outside market research firm.

Premises•Depend on type of business i.e. shop, factory, etc•Rent or buy

Machinery•Depends on type of business i.e. carpenter needs a saw, a hairdresser needs a scissors

Fixtures and Fittings•Lighting•Electric sockets•Gas points for heating•Telephones and telephone sockets•Office furniture

Running Costs

Advertising•Done by business or outside agency•Decide where to advertise i.e. TV, Magazines,etc.•Can be expensive

Rent and Rates•Rent is usually paid monthly•Rates paid to local council

Raw Materials & Power•Basic components used in the production process•Depends on type of business – factory or shop•Power needed for lighting, heating, use machinery

Wages and salaries•Have to pay employees for the work they do•Usually paid monthly

Other costs include:Government Taxes

InsuranceLicences

WaterTelephonePostage