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Scotland > Your Budget > Business Budget > Stage 2: Business Costs

Stage 2: Business Costs

Subsections : Business Budget |Household Budget |Interactive Budget Sheet |

These are all the costs of running your business. The list on the business budget gives you an idea of the items that you should include.

Fixed costs

Some costs are fixed – that is, they will be the same amount each month. Put them on your budget first to begin to find out how much itcosts to run your business for a month.

If you pay business rent quarterly, divide the amount by three to get a monthly figure or 13 to get a weekly figure. You may find it easier to budget by paying monthly – ask your landlord or the agent – otherwise put this amount aside for when you need to pay the quarterly bill. Business rates are fixed annually. Ask your council if you can pay over 12 months to help you budget.

Business water charges are also fixed annually. If your water is metered, the cost may be variable depending on your usage, and you should take an average of your most recent bills. Again, ask if you can pay over 12 months.

Business loan repayments are usually fixed. However, if you are borrowing on a variable rate, repayments may change with changes in the bank interest rate.

Variable costs

Other costs may vary according to how much trade you have done. These are called variable costs and may include stock and employee wages – do not include your own drawings at this stage.

Use your receipts, books and bank statements to work out how much these items have cost over the same period as the sales figure you worked out earlier, and divide by the number of months or weeks you have selected to convert to monthly or weekly figures.

Gas and electricity, metered water and telephone bills are often issued quarterly. Add up the last four quarterly bills and divide by 12 to get a monthly figure or 52 if you are working on weekly figures in your budget. You may find it easier to budget by paying monthly – phone the company to see what can be arranged.

If you use a vehicle solely for your business, all the costs can be put in here, such as road tax, insurance, repairs/servicing and petrol. However, if you use your vehicle for both business and social purposes, you will have to divide the costs between your business budget and your household budget in proportion. Petrol for journeys to and from your home and business premises should be included under household outgoings.

Convert the annual transport costs by dividing the total by 12 for monthly figures and 52 for weekly figures. Remember to use this figure to put money aside for tax, insurance, repairs/servicing etc. to give you a better chance of affording the ongoing cost of running the vehicle.

VAT

For details of the current rate of VAT and other taxes see our tax sheet.

If your business does not have annual sales over the registration level quoted on the tax sheet, you do not need to be registered for VAT.

If you are already registered for VAT then to de-register you will need to demonstrate that your turnover will be less than thede-registration level over the next 12 months. You could use your budget sheets in this respect.

This tax is payable on all of your sales, unless they are zero-rated or exempt. The tax paid on goods and services you have bought, as shown on the invoices, is your input tax and the tax on your sales is your output tax. If you have bought more than you have sold, or your taxable sales are zero-rated, your input tax will exceed your output tax and you will get the difference refunded.

The date on invoices you send or receive is the tax point, and this usually determines in which quarter’s return they should be included.

You may apply to your local VAT office to account only for the tax you have actually received, rather than from the date of invoice. This is called ‘cash accounting’.

You can also recover the tax you have paid on bad debts, instead of waiting for the bankruptcy or liquidation of the debtor.

Use your last quarter’s VAT return to work out a monthly average. Unless your business varies widely from quarter to quarter, this is as good a guide as any.

If you have problems understanding VAT, or if you have problems working out your monthly costs or any other questions, phone us for advice.

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