‘V’ is for volatility and variables

The building blocks of accountancy

is for volatility ad variables

Julia Burn continues with her A-Z of top tips. This month she turns to ‘V’.

 

There definitely appears to be light at the end of a very long tunnel and, thankfully, the vaccine programme seems to be achieving the desired results and is allowing the country to re-open, albeit slowly and carefully. 

There is still a level of uncertainty in the economy while things start to get back to normal and this will inevitably create volatility for independent practitioners’ business finances where it is not possible to return to normal immediately.

To try to stabilise through this volatile time, it will be necessary to identify fixed and variable costs to ensure the business is as efficient and flexible as possible to react and deal with the inevitable fluctuations that it may encounter.

Fixed costs for a business are those that will remain the same and continue to be incurred no matter what the level of income that the business generates. For example, premises rent and rates, wages for salaried staff on an annual salary, and subscriptions to professional bodies required for you to continue your trade that are generally an annual charge rather than being based on your level of income.

Other payments which are not fixed but required to be made at set time frames are things like PAYE, National Insurance and corporation tax, which will be dependent on the levels of salaries paid and profits generating.

Contrastingly, variable costs change with the volume of income the business generates. For example, specialist services that are required to be bought in, light and heat costs and general equipment required to service your clients.

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