Sales can be for cash or as a credit transaction. Cash sales are often best because the business receives the money for the sale immediately. However, business will often have to offer credit facilities to encourage growth in sales. Credit sales involve the organisation supplying the goods or services to the customer but allowing the customer time to pay for the item.
Income generated from rent
If a business owns property that it rents out to another company or person, the rental income received will be a source or revenue income for that business. Therefore if there are unused rooms in a company’s premises, or buildings that they do not currently need, it makes sense to earn some income for the business by renting these out.
Commission based income
A business may sell products or services on behalf of another organisation and may then receive commission for the work they have done. For example, when a mobile phone shop sells a contract to a customer it receives commission from the network operator for completing the sale. This is an important form of revenue income for the business.
Capital Expenditure
All businesses have different expenses to be paid. These can be divided into capital expenditure and revenue expenditure. Capital expenditure is money used to acquire or improve the long-term assets of the business such as its property or equipment.
Fixed Assets
These are items of value, which the organisation has bought and will use for an extended period of time, such as land and buildings, office equipment, machinery, motor vehicles, office furniture and fittings in the buildings such as carpets, shelving and curtains. Fixed assets are tangible items, which means that they are items that can be touched.
Intangibles
A business may also pay for some things that cannot be touched, known as intangible, which are not physical items yet still have considerable value for the business. The most common intangible items to a business might be a patent that a business has file to cover a certain invention or product, trademarks which cover logos etc.
Revenue Expenditure
Regular financial commitment is known as revenue expenditure and is shown on the profit and loss account.
Premises Costs
Some regular bills are associated with premises from which the business operates.
Rent – If the business does not own the premises a regular payment of rent must be made to the owner.
Rates – Most businesses must pay business rates which are a form of tax paid to the local authority and which contribute to the services provided by that authority. The amount paid is assessed by the authority and depends on the nature of the business, where it is located, what the business does and how large it is.
Heating and lightning – Gas and electricity bills must be paid to the company supplying the services.
Insurance – Having business insurance is a legal requirement. Buildings must be insured against perils such as fire and explosion and the contents must also be insured separately. Public liability insurance may also be payable.
Administrative Costs
These involve simple but important expenses on items such as telephone bills, postage, printing and stationary.
Staff Costs
Salaries – If employees are salaried they receive a set amount of money each week or month.
Wages – An employee who is waged will often be paid on an hourly basis or payment could be made according to how much the worker produces.
Training – Training is essential but not cheap, especially if it is intended to deliver specialist skills.
Insurance – All employers must take out Employer’s Liability Insurance. This type of insurance can compensate employees if they sustain injury caused by a bad or improper working environment.
Pension – Most businesses are required by law to provide some form of pension to their employees.
Selling and distributing costs
There is a range of costs associated with selling products or services, which a business produces. The most common of these are:
- Salaries – Paid to sales staff
- Carriage – The cost of delivering the product
- Marketing – Such as advertising and promotion costs.
Finance Costs
Very few businesses can operate without a bank account, but there are further expenses associated with this.
Bank Charges
Bank charges can be very expensive for business customers, Individuals generally benefit from free banking, meaning that as long as the account does not go overdrawn, all transactions are free.
Overdraft, loan and mortgage interest
Any form of bank borrowing will also incur interest charges that must be paid; again the best advise is to compare the different deals offered by banks, as some will cost more than others.
Purchase or stock or raw materials
Businesses that sell products need stock to sell and this is invariably a large expense.
