Introduction
Let be real here, Why do you run a business? And if you don't have a business, "You work to make money right?" That's same with running a business. Some would say to change lives, to solve people's problems but we both know in the end, you want to make money.
It also means you need to be able to give account of your growth, of how each money that comes in and goes out was spent.
Right? That's where costing comes in.
What's COST?
Cost is the money needed to produce goods or services. As an entrepreneur, you need to understand how to manage your cost
Why is costing important for entrepreneurs?
To direct the impact of profitability
You cannot do without coating your business, unless you want to run it to the ground. Once you know how to manage your costs, you can increase the level of profits you get in your business and not one that's incurs losses.You have an advantage over your competition. Tracking your cost gives you the advantage to offer a much more attractive prices of you products or services over your competition. Having a fair price can help attract more customers to your brand.
Make better financial planning. Costing is important because it provides entrepreneur a clear understanding of how their business is run. This gives you a better direction of how to create realistic budgets, allocate your resources to areas that will drive growth, generate maximum result, make a strategic approach to set your prices and also make the right invention in your business.
You analyse potential financial dangers that will hurt your business and learn how to manage this risks. Making the wrong move can destroy all you've worked for. Putting you into debts that you'll have to pay off for a long time.
Difference between costs and expenses
Cost and expenses may seem similar but they are two different things when it comes to finance.
COSTS are direct with the production of goods or services that your company or brand offers.
These are the budget directly tied to creating these products or when you have to deliver a service.
Costs are divided into two main categories.
Direct cost and Indirect Costs.
Direct Cost are the transactions that can be traced back to a specific product or service you render. I mean the cost of raw materials used in creating this product.
Indirect Cost are those not directly tied to the but incurred along the way. Example would be the cost of utilities used in the production.
EXPENSES, on the other hand, occupies a much wider range of costs contracted in the day-to-day running of the business. You can't do without making certain expenses. These includes rent, salaries, marketing, etc.
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Note: In simple terms: With cost, you can decided to spend your money or not. To produce more products or not. But with Expenses, you don't have any choice but to make them. You have to pay for rent, pay salaries, fuel the bus, regardless of whether your business is producing any goods or services at the time.
Example
Let's say Mr. A owes a bakery. The cost of running his bakery includes the oven, flour, sugar, margarine, gas.
His expenses are the bakery workers, the rent for the building, light bill, water bill, advertising, marketing, and fuel for distribution. These expenses are necessary If Mr. A wants to keep running his business but their are directly tied to the production of the bread.
Benefits of performing a good cost determination?
- It helps you make better financial decisions. Knowing the cost of producing the goods or services helps you set the right pricing strategies so you are not left in red.
- A good cost determination guides you to identify areas that are inefficient and waste of time. This way you can take proactive steps to streamline your activities, reduces unnecessary expenses, and improve on ROI.
- Good cost determination improves your budgeting. Depending on how you calculate your cost and expenses, you can create more realistic budgets align with your business goals and help you avoid budget overruns.
- A good cost determination can aid in accessing the right performance of the various services you render.
How do you determine the costs of your business
I'm into delivering freelancing services as a social media manager.
I offer various digital skills ranging such as Social media audits, Competitors analysis, Target audience analysis, Company profile,
Optimization of accounts, Content calendar, managing social media platforms, etc.
I determine the cost of a project I take on by multiplying the total number of hours I'm work by my hourly rate.
If I'm working on a project for 30 hours per week and I charge $30 dollars per hours.
30 hours x $40 hourly range = $1200 total project cost.
If I make an expense of $100 per week we have $100 - $1200÷100 = $1100 (total profit).
These formula helps me stay on track of what I'm spending on and how to manage my business.
I invite @hahdie, @barbareek, @eveetim to participate in this contest.
Greetings @yuceetoria
1.- You have developed a basic concept about cost, and have indicated the importance for entrepreneurs. When starting a business it is important to use capital efficiently to capture the resources needed in the production of goods, or provision of services.
2.- You have presented the difference between costs and expenses in a practical way. We can say that one of the most outstanding differences is that the cost is of a lucrative nature because a future income is expected, while the expense is a disbursement to cover the usual activities.
3.- You have shared, according to your criteria, the benefits of generating a good determination of costs, touching on an important point of any business, which is “to avoid ending up in the red”.
4.- You have explained your way of determining the cost of providing services. A simple formula where the cost per skilled labor predominates, there is a $10 lag in the hourly charge.
Thanks for joining the contest
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