What are fixed costs in a business?

Fixed costs are expenses that remain constant regardless of the level of production or sales within a business. This means that whether the business produces a few units or many units, the fixed costs will not change. Examples of fixed costs include rent, salaries of permanent staff, and insurance. These costs are essential for maintaining business operations but do not vary with business activity.

Understanding fixed costs is crucial for financial planning and budgeting, as they help business owners determine the minimum revenue needed to cover expenses. By separating fixed costs from variable costs, which do fluctuate based on production levels, businesses can better manage their overall financial health and make informed decisions regarding pricing, production levels, and overall strategy.