Fixed expenses, or fixed costs, are business costs that do not change in total amount over a short-term period, regardless of increases or decreases in the company's production or Bookkeeping Services in Jersey City. They are incurred to maintain the company's operating capacity.
Here are five common examples of fixed expenses:
1. Rent or Mortgage Payments
The monthly payment a business makes for its office, factory, or retail space is set by a lease or loan agreement. This cost remains the same whether the business has a record month of sales or no sales at all. It is a cost of simply having a physical location to operate from.
2. Salaries (of Permanent Staff)
The compensation paid to permanent, salaried employees—especially management, administrative staff, and production supervisors—is typically a fixed expense.
These employees receive the same set paycheck each period, irrespective of how many units were produced or how many services were sold during that time. This is distinct from hourly wages for production staff, which are usually variable costs.
3. Insurance Premiums
Payments for business insurance policies, such as general liability, property insurance, or key employee health insurance, are almost always fixed expenses. The premium is set for a defined policy period (e.g., monthly, quarterly, or annually) and is independent of the business's daily activities or sales performance.
4. Depreciation Expense
Depreciation is the accounting method used to systematically allocate the cost of a tangible long-term asset (like machinery, vehicles, or buildings) over its useful life. When the straight-line method is used, the depreciation expense recorded each period is the same, making it a predictable and non-cash fixed expense that does not fluctuate with production volume.
5. Property Taxes and Licenses
Taxes levied by the local government on a business's real estate or property are fixed costs. These taxes are based on the assessed value of the assets, not on the business's revenue or Bookkeeping Services Jersey City. Similarly, required business licenses and annual permits are set fees that must be paid to maintain legal operation, regardless of how busy the company is.