Gross profit
The difference between Sale and Variable cost is called Gross profit. It
shows how much money you have got left to pay your rent, telephone,
internet access, marketing and your own pay.

It is important to have focus on that figure. If you do not have a sufficiently
high Gross profit you have a bad business. Always try to optimise your
Gross profit.
Gross profit is also called the contribution margin.

Fixed costs
Fixed costs will usually not be bigger if you sell more. And not smaller when
you sell less. The rent of the shoe shop will be the same whether you sell
10 pairs of shoos or 150 pair of shoes.
The staff can sell 150 shoes. But they only sell 10 pairs. It takes time to lay
off staff so it is considered as a Fixed cost.
Fixed costs can be variable - like a telephone bill. It is because it does not
vary with sales volume. The variation is due to other circumstances than
the sales volume.
Below you find examples of fixed costs.

Write of / depreciation
You invest in a new building for your business. Or you purchase a 10
thousand dollar machine. These big investments you can not deduct in the
accounts the first year. The investment must be spread out over several
years.
One way to do it is to deduct (write of) 30 % of the value every year.
• E.g. A machine cost 10.000 $.
- Year 1 you can deduct 3.000 $ in the operating budget (30 % of
10.000).
- Year 2 you can deduct 2.100 $ (10.000 - 3.000 = 7.000. 30 % of 7.000
= 2.100)

For specific rules in your country contact an accountant or the relevant
authorities.

Interest
If you borrow money in a bank you can deduct the interest in the operating
budget. Also the different charges the bank charges for their work can be
deducted.
Interest for money borrowed from family or other sources can usually not
be deducted.

For specific rules in your country contact an accountant or the relevant
authorities.




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