Unit 3 Financial Forecasting for

BusinessAim 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 costsStart-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 CostsOperating 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 costsFixed 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 costsVariable 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.