This article discusses what monthly expenses are and the different aspects that should be considered in your calculations as you ensure being able to make your monthly nut.
When we use the phrase, “making your monthly nut” we are not referring to a squirrel’s foraging skills and their hordes of tree nuts. The origin of the phrase actually comes from old England, when a circus would arrive in town and be taxed for the privilege to set up.1 To make sure the travellers didn’t skip town overnight, the city sheriff would take one nut from the wheel of the largest wagon, keeping them stationary until they paid their dues. Today, “making your monthly nut” has come to mean being able to afford your basic monthly expenses with no extra frills. In terms of business, how you approach these monthly expenses can range greatly depending on how long you’ve been in operation for. From analyzing your operational year expense sheet to constructing a contingency plan, having a solid strategy to keep expenses low without sacrificing customer service is key to helping your business grow in strides.
For businesses over a year old, looking back at your prior budget forecast and operational year expense sheet is a good place to start. Comparing your planned budget versus what was actually paid can give you some good insight into your company’s fixed and variable expenses. For example, if the fixed maintenance expense for your building is $1000 dollars, but the furnace needed to be replaced, that is an unexpected variable you encountered over the past year. Therefore, your “nut” should be based on the fixed expenses that have been budgeted out each month, or in other words, the minimum costs required to keep your company running and functional. Some fixed expenses may include:2
- Office supplies
- Licensing fees
- Legal fees
- Marketing and advertising
- Payroll and wages
- Repairs and equipment maintenance
- Company vehicles
With that being said, there are ways to account for changes in your fixed expenses as your company continues to expand. If you have a new hire quota that you’re expecting to meet, tallying up the additional payroll and wages is essential for staying on track with your monthly expenses. Also, when it comes to things like insurance, you can account for inflation each year by calculating a 3% addition to last year’s numbers. Planning these monthly expenses ahead of time will help you manage your finances throughout all the necessary changes that your company needs to not only stay open but grow as well.
A brand-new business that doesn’t have any previous data to go off must do some heavy lifting and construct a contingency plan. Along with budgeting all the tangible expenses of the business, something that should also be considered is bad debt, otherwise known as receivables. Receivables are when customers do not pay for your product or service and the money cannot be collected. This calculation can be predicted by taking 5-10% of the total volume of the product or service you hope to sell over the next year. For small businesses, that may be $10,000 worth, which would mean that a maximum of $1000 can be considered bad debt. That total can then be spread across your predicted monthly expenses so you can account for potential losses. While this total can be written off at the end of the year, it is vital to take into consideration the monthly impact so your business can stay afloat.
As silly as “making your monthly nut” may sound, it is important to stay on top of your company’s fixed expenses so you can keep the lights on and your doors open. Whether you’ve been in business for years or are just starting out, there are several strategies you can apply. One great way to start is by comparing last year’s budget forecast with your operational year expense sheet to determine if your predictions were accurate and where adjustments can be made. New businesses who don’t have any previous data can prepare with a contingency plan, which not only highlights all known fixed expenses but also potential losses. Whether you run into bad debt or not, it is better to be prepared and give yourself some wiggle room just in case. Either way, a little bit of planning and research goes a long way so you can make your monthly nut with ease.
1 “Making Your Monthly Nut.” Living Real. http://livingreal.net/2010/01/20/making-your-monthly-nut/
2 Indeed Editorial Team. “What is the Operating Expense Formula (And How to Calculate It!)” Indeed. https://www.indeed.com/career-advice/career-development/operating-expenses-formula