Eventually, your landlord may increase your rent, or you’ll move to a different location. In fact, all fixed costs are likely to change at some point during the life of the company. Unless an employee is paid hourly or piecemeal, the money you spend on them does not increase or decrease proportionately with production. It is still the number of employees you have that determines how much you spend, not the number of sales the business does or how productive they are each period. It’s important to note that these are still fixed costs. If the business is great, you might hire more employees. For example, if the company isn’t doing well, you might have to lay off workers or cut back their benefits. It is likely that over time the success (or lack thereof) of the business will affect the amount you spend on employees. Another fixed cost that often comes with having employees is any benefits you provide that don’t change based on hours worked - think health insurance and 401(k) plan contributions. First, if you pay your employees on an annual salary rather than hourly wages, then their expense is a fixed cost. There are also plenty of fixed costs that come with having employees. Not only is the monthly repayment they make a fixed cost, but so is the interest they pay on the loan. Let’s say a company has taken out a loan for $20,000 for a small capital project. If a company has taken out any loans, their loan repayment is also a fixed cost. Another fixed cost might be equipment costs or rentals. You have other fixed expenses for your workspace, such as utility costs - these might change seasonally, but in many cases won’t change drastically as a result of increased production or sales. Rent is just one example of a fixed cost, there are many more. But in a month where the business is booming, you get to enjoy your huge profit margin. In a month where the business is slow, you might struggle to make rent. No matter how successful your business is in a given month, you always have to pay your $2,000 in rent. Let’s say you run a local bookstore, and you have a monthly rent of $2,000, per the lease you sign with your landlord. An obvious example of a fixed cost is the rent or mortgage that a company pays for its place of business. Fixed costs are those that remain stable regardless of business performance.
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