Understanding Business Costs - The Money Drains
Costs are basically everything a business has to spend money on to keep running and make their products. They're what eat into profits and can cause serious cash flow headaches if not managed properly.
There are three main types you need to know. Variable costs change depending on how much the business produces - things like raw materials and hourly wages. These are actually safer for new businesses because if you're not selling anything, you're not spending on these costs either.
Fixed costs stay the same no matter how much you produce - rent, insurance, and salaries are perfect examples. These are riskier for startups because you're paying them even if you sell nothing. Semi-variable costs are the tricky middle ground - they stay fixed until you hit a certain production level, then jump up.
The magic formula to remember is: Total costs = Fixed costs + Variable costs. Estimating costs can be proper challenging though, especially with external shocks like supply chain issues or government policy changes messing with your calculations.
Remember: Understanding costs is what separates successful businesses from those that crash and burn!