When discussing financials with capital seekers and preparing the financials for the whole capital raising process, we generally get to the subject of distinguishing between fixed cost and variable cost. It is important to know this, because it conveys some very important information to investors.
First of all, let's talk about what fixed cost and variable costs are. Fixed costs are just as the name implies: expenses that are fixed. These are expenses that you have no matter what your sales are whether they are good one month and bad the next month, the rent is going to be the same, the management salaries are going to be the same. There are a lot of costs of this nature. Variable costs are, as its name also implies, costs that are variable with the level of sales. Examples might be sales persons' commissions. This is a cost you do not incur until a sale is made. If a company makes sales on credit cards, the merchant fees that a credit card company charges are not incurred until that sale is made.
The distinction between fixed cost and variable cost are important, because it helps investors to determine two very important financial ratios when evaluating a company; the burn rate and the break even analysis. The recommendation I always make to capital seekers is, if you do not feel comfortable categorizing your costs between fixed and variable, give us a call at the Capital Match Point. We deal with this a lot, across a lot of different industries, and we will be happy to help. Because at the end of the day, we are in the business of maximizing the opportunities of capital seekers to get that funding.

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