What are Direct Costs? Start-up Funding Help
Hello, I am currently looking at starting a new funeral business in Northern Ireland. I am to have a meeting with an investor to gather some start up funding. I am working on the business plan and I am currently on the Financial Plan. My problem is arrising when it comes to direct costs. Currently in direct costs I am only including paying staff (as they will be on a self employed basis). However, the problem arises when it comes to classifying coffins. At present I am listing them as overheads (as stock) but I am debating whether they should be a direct cost? A stock management policy will be in place which always aims to keep at least 4 coffins in stock. Another problem arises when classifing fuel. I currently have it listed under overheads. However, fuel is essential to the funeral service (i.e. driving the hearse). I was wondering if anyone would be able to advise me on these issues? Because my only listed direct cost is staff, I seem to be getting a skewed gross profit margin (85%) which seems unusually high. Thank you for your help
there is no firm definition of "direct costs" vs "overheads" other than a general notion that direct costs should be what is incurred per transaction and "overheads" are largely fixed for the level of activity.
So in your case the costs of the coffin and staff that you pay "on the day" (ie you dont pay them if there is no work) would generally be direct. Things like fuel could be classed as direct but often would not be as the value is quite small.
in terms of margins, I would imagine for your line of work the margins would be high. NB you need to be very careful with self employed staff, to ensure they are not actually employees, but just "casual" ones, ie called to work when there is work rather than having a fixed contract. Make sure you get proper advice on this.
I hope that helps a little, but overall dont worry too much about forecasts, they are always just estimates to give you a an idea of the big numbers. Just concentrate on those and add a big room for error!
James Smith [i]Chartered Accountant[/i] www.jamesesmith.co.uk --------------------------- Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
Sorry for only getting back to you now, I had to put the business plan on hold for a few days due to other commitments.
Thank you very much for the advice, it is greatly appreciated. Also thanks for the heads up about the casual staff, will have to go through the plan and change the wording in a few sections.