This power tip will help you stay on top of your cashflow by understanding the fixed and variable costs in your business, and the difference between marginal revenue and marginal costs.
Understanding these cashflow concepts can help you to know whether to keep trading if your business is facing challenging times. It also provides an opportunity to maintain operating momentum whilst you build and innovate your business.
- Fixed Costs are costs that you’re going to incur no matter how many sales you make. For example, rent, insurance and loan repayments.
- Variable Costs are costs that are based on the number of sales you make, like the stock and materials you use to make your product or provide your service.
- Marginal Revenue is the additional revenue from the sale of one additional product or service.
- Marginal Cost is the additional cost of producing this additional product or service.
“My business coach was such a great mentor and helped me out every bit of the way. It’s good to see the planning through the cashflow forecast – how much your income is and how much you’re spending. I didn’t realise how much I could be making at the end of each month. It was a good overview. I think I got a better understanding of how businesses work. When we were working through the business plan, John was telling me stuff I didn’t even know about or think of, and that was really helpful.” – Zara, Makeup by Zara Parker, Pilbara WA
Did you love this power tip? There is always more to learn about your small business as your business journey continues and evolves. A good way to learn is to put aside some time every week to look at a new Many Rivers Small Business Resource.
For existing clients, make sure you reach out to your business coach if you have any more questions about this topic. It is always a good idea to talk about what you just learnt. They might even have some more tips to share with you.
If you are new to Many Rivers, find out more about what we do by looking at some of our client stories. Each of our clients have a very different journey to share about their business and their experience working with Many Rivers. You can read about the different programs we have available here.
Do you have a passion or small business idea? Or maybe you have a business that you would like to expand or that needs some business coaching support?
We’re here to help.