Hey! To help you get your questions answered quickly, I created this new mini-post series all about Squarespace and Biz tips. Blogs in the mini-series will be shorter and sometimes related to a Freebie to help you get some answers to your questions.
Last month, I was helping a client with his budget, and he had a question about the P&L and direct and indirect costs.
The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year. In your P&L, you may have to include direct or indirect costs.
Maybe you have the same questions, so here is the difference between these costs.
Direct costs are expenses directly going into producing goods or providing services, such as direct labor, direct materials, and manufacturing supplies.
For instance, let’s say you decide to produce t-shirts. If you don’t have to produce them, these costs don’t exist, but your direct costs will be ten times higher if you decide to produce ten times more.
Indirect costs are general business expenses that keep you operating, such as rent, office expenses, employee salaries, marketing expenses, professional expenses, and other overhead costs.
You can sell one or 100 products or services; you must pay these costs. The goal is to have fewer indirect costs if you start your online business.
Be conservative. Remember, you must revise your budget as soon as something changes (if you have more sales or expenses). Some of you had to revise your budget when the pandemic arrived last year.
And you, do you have a budget, and do you revise your budget every month or every year?
Comment below; I’d love to know what you do to manage your business.