Greetings and welcome to my blog. Thank you for this wonderful teaching on cost for entrepreneurs.
What is cost and how important is it for entrepreneurs? |
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Cost is the total sum spent in the production of a good/goods or in providing a service. Cost includes all that was taking into cognizance such as direct purchase of goods, money payed to workers for direct production, money spent to purchase the goods and all expenses made around the good or service production which enables the entrepreneur to know the price to fix for that good or service.
Importance of cost:
- To ascertain price of goods or service: Cost helps the entrepreneur to fix price that will be profitable and yet not be so far from competing prices.
- cost enables the entrepreneur to plan financially and be able to forecast expenses in the future and be able to maintain adequate cash flow.
- Cost helps the entrepreneur to know how much the good or service will be sold at so that he wouldn’t sell below the cost of production.
- When the entrepreneur understands cost, he would be able to make the right decisions so that he would increase his profit, reduce his expenses and make his business well structured.
- Having a good knowledge about cost in the long run will make the business to grow, be sustainable and be profitable over time
Establish the difference between costs and expenses, giving examples of this through a real case. |
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Cost is different from expenses. Everything invested that is needed to provide the good or service directly is part of cost but other payments that are not directly related to the production of the goods and service are expenses.
For example I started a point on sale service that render financial service to people without having them go to the bank.
My cost includes:
My POS machine
Shop rent to start
SIM card for network connection
Data for the sim
Paper roll for printing receipts
Staff payment
My expenses includes:
Monthly security tax
Electric bill for the shop
Transport to shop
Water and food for staff
What are the benefits of making a good determination of costs? |
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When good cost determination is made, it’s very beneficial to business and the benefits includes:
Increased in production and general performance of the business because the entrepreneur would be able to know ways to save more money, use his resources more efficiently and get rid of needless costs.
Will help entrepreneurs to focus on more profitable ventures and policies considering their net profit.
Good determination of cost would help in pinpointing and singling our financial problem and hence solutions can be provided.
Good cost determination can be used to prove investments that are significant and give proof of prospective Provision of advantage to the stake holders and in financial decision making.
Can help the entrepreneur consider all the possible situations that can have effect on the business out come and be able to make informed decisions.
How do you determine the costs of your business? If you are not an entrepreneur, how would you do it? |
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Am not an entrepreneur but I am looking forward to starting a car importing business in the future. I was discussing with my brother on the cost and from our discussion, if I want to start importing cars but I would start with just a saloon car say Toyota Camry 2008 model for the start. My cost would be;
Car price $2500
Shipping $500
Clearing $ 250
Body work and fittings $70
I would be using his business space so I don’t have to pay for space.
I don’t need to be present or hire staff cos his staff would see to the sales.
Any other intricacies are covered in his business name already registered. So it’s a partnership am leveraging on.
Hence I calculate all the my cost to import one saloon car is $3320. There are other expenses such as paying the driver to move the car from the wharf to the market, fueling the car but these are expenses and not part of the cost.
Thank you for reading through. I ask @jovita30, @lewassrite and @wendy50 to join this learning challenge.
This is so educative, and I have learn a lot from it. Come to think of it, cost is different from expensive just as you said. For example, as an entrepreneur, this two factors are very important in other to know if you're progressing in your business. To me, I see cost as the amount you use in purchase good while expenses is other sum of money spend either to maintain the product. If I buy Malta Guinness at the sum of $5 the expensive might be transporting the goods to my shop, etc. Well done.
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Hi dear, car dealership is a lucrative business, just that our Government is making things hard for us. But for now I'll advise you to buy from the wholesalers over here and resale until you're making a big profit and have big capital too. The reason I'm saying so is that importing the car will cost you more, first you'll need someone you know overseas to inspect the car for you before buying, and he/ she should register with the car company and he should be trusted because you have to send the money for him to purchase the car for you. You'll transport the car to shipping company, pay for certain clearance, and shipping fee is pertaining to how heavy the vehicle is. Then the custom duty which is 35% of the amount you bought the car; very high right? The agency fee too and miscellaneous, you may end up spending more than 5-6 k Dollars on the car, that's why I said it's good to buy here for a start. I wish you success!
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Thanks for the advice But The wholesalers here also import their cars and would add their profit to sell for me making it more expensive. The person am going to partner with is a whole seller too so that makes it easier to purchase cos he has all the intricacies settled like I said earlier.
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Okay, if I get you well he's a car dealer too, right? If yes that's better, all the same success!
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Yes ma’am. Thanks 😊
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Greetings @alexanderpeace
1.- As you have defined it, costs correspond to the investments made to produce a product or provide a service. The good management of it is important to obtain the desired profitability levels.
2.- You have established the difference between costs and expenses, using as an example the point of sale for financial services, adequately determining what corresponds to cost and expense in your venture.
3.- You have shared with us the importance of costs for the profitability of a business, and how a good cost management can help to have a solid business.
4.- You have established what would be the costs of importing a vehicle, which will allow you in the immediate future to know what would be the cost of sale of that good to recover the investment and make a profit.
Thanks for joining the contest
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Thank you for the review
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