It’s hard to imagine a company that doesn’t care about accounts. After all, they are the ones that guarantee access to services, products and that the business can continue operating.
Even those who are not very financially organized can get an idea if the money they have is enough. At these times, the calculations begin, the need to cut expenses, increase profit and thus manage to close the month in the blue. This reinforces the need to understand what variable expenses are , as important as fixed ones .
When it comes to spending, things aren’t always equal. There are differences and ways of dealing with them and that’s what we’ll talk about in this article. Read with attention!
Understand what variable expenses are
The name already gives a good indication of what they are. These are accounts that are not fixed, that is, they vary. These costs are not the same every month. They may even be frequent, but the value varies.
You can think of a number of situations that will generate variable expenses. For example, if a month has an extra order, you will have to buy more raw materials to manufacture the products or hire a temporary worker.
Another example might be a commemorative date . On Mother’s Day, some companies give gifts to employees who have children with a souvenir. This can happen on other dates, being very common at the end of the year. This is an expense that is variable.
In general, variable expenses are closely related to production and sales. When these have a greater demand, costs increase.
So that you are no longer in doubt about what variable expenses are, here are some possibilities:
- Fuel or transportation;
- Extra logistical operation to meet demand;
- Unscheduled maintenance, for example, of machinery;
- Production accidents;
- Sales commission;
- Sales Taxes.
Why Control Expenses?
As these variable costs can fluctuate a lot, they can compromise the budget of companies and affect the health of the business. Those that are essential will hardly be avoided, but they can still be controlled. If not, they become villains.
Good planning helps with control, however, it is necessary to have a forecast for when there is an increase in demand.
If variable expenses are not controlled, they can affect fixed expenses and generate indebtedness. Stay tuned!
How to control your company’s variable expenses?
After understanding what variable expenses are and the risks they may represent for your business, the next step then arises: how to control them? There are some measures to be adopted that help in this objective.
Find out about variable expenses
It is important to know where and how much money is being spent each month. Knowing all the variable expenses of your business is the first step in understanding this relationship.
They must be available to the financial sector and, preferably, in an automated and integrated system. Once computed, the new account can be quickly detected and taken over.
If you already know variable expenses, it is much easier to create reduction or even stabilization goals. For example, if today they consume 40% of the budget, plan that in 3 months they will be reduced to 30%.
In that case, it may be necessary to review the current way of working and other aspects. Investing in more modern technologies and rethinking operational processes usually helps a lot. In the annual planning, indicators can be defined for different situations, including when there is an increase in demand.
Make expenses variable and fixed
You can make some expenses variable, so you’ll know exactly how much you’ll spend each week. For example, so that the company does not have to stop production due to machinery problems, reduce the preventive repair interval. This can happen less frequently and be fixed.
When the values do not vary, it is much easier to organize and not have extra expenses.
Look for partnerships
If using outsourced logistics, try to partner with one or two companies. They will be aware that at some point there may be an increase in demand and will be prepared to respond.
In the contract already establish the maximum values that will be applied for the extra service. This ensures better planning and that there are no abusive charges for being something exceptional or urgent.
Always make shopping lists
The purchasing sector needs to know exactly what should be purchased and how much. He can repeat the orders every month if that’s the need.
Otherwise, each sector needs to send the shopping list in advance without having leftovers. An emergency stock is not always necessary, depending on the company’s activity.
change the habits
Changing habits is perhaps the point that will most impact the reduction of variable expenses. Employees should be instructed to avoid waste and better control expenses. This means reducing production loss, making intelligent use of work resources and not appropriating company objects.
When everyone collaborates, it becomes much easier to reduce variable expenses and keep the budget under control. Small savings make a big difference.
This type of expense can weigh heavily on the budget, so it should receive special attention in your organization. However, it must not be out of control. Knowing what they are and imposing limits helps keep finances healthy.