# How to calculate running costs

Written by chuck brown
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Calculating running costs for a business, vehicle, appliance, or any other billed service or product is essential for knowing the total cost(s) of that particular product or service. What some people do not realise is that the actual upfront purchase price for anything that requires additional or continuous money maintenance does not represent the total price of ownership. To get the total price of ownership, you must calculate all the associated expense(s) involved.

Skill level:
Moderate

## Instructions

1. 1

Remember the working definition for running costs: the money spent to use or operate whatever it is you are considering the total cost(s) of. Calculate running costs by counting every related, associated cost involved in your day-to-day use. To illustrate this definition, the following are examples of how the above definition would apply to running a business.

2. 2

Write down your utility costs. Include among this list your electricity and/or other power source costs, such as gas, solar or other. Add in your phone bill, water bill, cable/satellite bill, your payment processing costs, computer access and any other utilities-type expenses.

3. 3

List your employee cost(s). Record each employee's salary, employment tax, expense account, uniforms, work supplies, company vehicle expenses, employee benefits, and any other money that comes out of your pocket to equip, maintain and pay each employee.

4. 4

Consider actual business expenses. This is money related to the facility itself. Include in this section building costs (mortgage or rent), equipment costs, janitorial and building maintenance costs. List also in this column all other associated service(s) for your facility upkeep.

5. 5

Total your various insurance costs required to run your business. (Some businesses may require up to seven different kinds of insurance to operate.) Do not forget your various tax liabilities. List every insurance and tax you are required to pay, and you will be surprised to learn these costs alone can account for around 30 per cent or more of your daily expenses.

6. 6

Add in expenses for any parts and other supplies for the office you may incur on a daily basis. Do not leave out any expenses, no matter how seemingly trivial. You may be surprised how expensive that "inexpensive" item can be over the course of a year. Every unlisted expense is a money drain unaccounted for, and these have a way of adding up quickly. Total Steps 2 through 6 to get a realistic estimate of daily running costs. Divide by 30 for those monthly billed costs to get the average daily cost.

#### Tips and warnings

• Establish a budget for each month's expected costs. Establish an average slightly to the high side for fluctuating monthly bills. Escrow each amount outstanding and leave that escrow alone. Do not dip into it to cover any other expenses.
• To be more financially secure, add 30 per cent to your estimated running costs to account for and cover unforeseen cost overruns.

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