A fixed expense is an expense that exists inside a business whether or not the business generates income.
Unlike a variable expense, which exists only when the company generates income (see below), these expenses are seen on the Profit & Loss statement (P&L) each month and are critically important to understand.
If unclear whether or not an expense is fixed, ask yourself this question, “Do we have to pay this expense even if the business doesn’t generate income?” If the answer is yes, it’s fixed.
Examples of fixed expenses are:
- Office rent
- Utilities
- Recurring software
- Insurance (health & business)
- Payroll & associated taxes
- Debt interest
Adjusting your fixed expenses is one of the only things you have complete control over as a business, and one of the two levers that can be pulled to directly impact net profit.