In a company, whatever sector it belongs to, finances often need to be reviewed and optimized. Costs, expenses, prices, amounts, expenses and investments must always be reviewed.
To avoid financial errors in planning your business, it is essential to understand each step you take when it comes to money and to know with certainty whether each financial movement is an expense or an investment.
By knowing this difference you will be able to analyze more clearly the results of your business and detail what is actually coming back to you in the form of profit. That’s why we’ve prepared this article to help you differentiate what is spent and what is invested in your company.
Understanding what are SPENDINGS:
The expenses are defined by all the money used for the realization of the company’s final activity, i.e., those aimed at maintenance, expansion, profit incentive, increase of raw material, labor, equipment, among others.
We cannot forget the unforeseen, all money destined to cover a demand that was not being expected can also be understood as expenditure. Unpredictable values, but necessary for business continuity.
The unforeseen expenses can be determined as a loss, since it will not be passed on to the final price of your product or service. On the other hand, it is also a one-off expense, which once paid will not return to your finances.
Among the expenses, we can understand them in two ways, costs and expenses, below we will understand what each one means:
We can understand as costs all the values related to production, i.e. labor, raw material, and all the expenses for the final product to be delivered.
Among them are the bills of consumption, equipment maintenance and the payroll of its employees.
The costs are determinant for the functioning of the business and need to increase whenever the intention is to produce more.
There are direct and indirect expenses, the first is linked to the production of your product or service and the second is the deployment, such as logistics, cleaning, maintenance, ie those sectors that keep production running and carry the work forward.
Expenses related to the expenses necessary to maintain the administrative structure and others not related to the final product.
They can be of a fixed or variable nature, the first group being those that do not change, even in the face of a change in billing, i.e. they do not cease to exist as in the case of rent and consumption accounts.
Variable expenses, on the other hand, are linked to the cost of the product or service, and vary according to sales. In other words, they are those expenses that depending on your demand may be higher or lower such as freight, taxes, etc.
Understanding the origin and purpose of each of your company’s expenses is an essential factor to measure performance and identify possible failures in your system.
Understanding what INVESTMENTS are:
Every expense that aims to increase the revenue of a company can be understood as an investment.
Every investment presupposes an added value, that is, the valorization of your business.
It is extremely important to understand that to make an investment it is necessary to use an initial value, with the objective of making it return in the short, medium or long term.
Each investment must be made after research and study to make sure that it will indeed bring positive results and not losses.
An investment can be made in order to reduce costs, for example, if your monthly expenses with rent, consumption accounts and infrastructure are too high, you can review the need for these expenses and propose changes, such as starting the administrative activities in a coworking instead of maintaining a private office.
From movements like these you review the need for expenses and can turn changes into investments.
If you’re looking for solutions for your business count on Easy Work Space, here we can offer you several services for your business to go further.