What are Fixed Expenses? A Crash Course for Small Business Owners

by | Aug 20, 2021 | Financial Advice, Insights To Business

Listen Now

When you begin to create your budget, you will notice that you have two different types of expenses, fixed and variable. Fixed expenses often make up the largest percentage of your budget. These are more often than not the primary expenses you pay every month. The foundation of your budget, so to speak. Variable expenses are those that tend to fill in the gaps and cover all of the necessities over and above what the fixed expenses cover. Many of your business expenses are of the variable type, but your fixed expenses are the ones you can often count on to build the base of your budget.

What is a Fixed Expense?

A fixed expense is any expense that remains the same from month to month. They are paid on a regular basis and oftentimes, can be paid quarterly, semi-annually, or annually. These expenses often include your mortgage payments, rent, insurance premiums, auto loans, and utility bills that have been put on a budget plan. Fixed expenses rarely change and are not easy to have adjusted. Refinancing various types of loans may help to reduce their overall payment amounts while applying discounts to your insurance can lower your monthly, semi-annual, or annual premiums.

What are Variable Expenses?

The other type of expenses that you have in your budget are variable expenses. Variable expenses are not as stable as fixed expenses and may change a little or a lot from month to month. These expenses are often the ones that are made on a daily basis. This can include office supplies, gas for a company car, buying fast food for a meeting, or buying uniforms. It also refers to disposable expenses such as coffee, toilet paper, cleaning supplies, and other items that are used for the day-to-day operations of the business.

Saving Money on Throughout the Month

While it is much easier to save money on variable expenses, you can save money on fixed expenses if you really want to. Refinancing a building or auto loan can earn you a lower interest rate and will help you pay off your loan much faster if you continue to pay over the minimum amount. When it comes to your insurance premiums, you can apply a variety of discounts to reduce your premiums. Safe driving, adding a security system, and completing a defensive driving course are all ways you can lower your insurance premiums on a monthly basis.

Fixed expenses are a part of any business budget. Understanding what they are and how you can save on them is important if you want to effectively manage your cash flow. Take the time to carefully go over your budget and look for ways you can save money. Although your fixed expenses may not change, you can take control of your variable expenses by shopping around and looking for better deals. Discounts are available for many of your variable expenses and you may even be able to find lower rates if you buy certain items in bulk.