Costs basics

This Costs basics Info Guide explains the types of costs incurred in running your Guesthouse or B&B and identifies the three key factors that drive your costs.

Costs

Costs vary with each individual business. Your costs and other outgoings may include:

• Food costs
• Staff costs
• Marketing
• Overheads
• Taxes
• Capital expenditure
• Loan repayments

Food costs

Staff costs

Marketing

Overheads

Overheads include all the other expenses which are incurred in running your business, eg, rent and rates, electricity and heating, accountancy fees, insurance and bank charges.

Taxes

Taxes include:

• VAT (if your sales are over €37,500 you need to charge VAT to your customers).
• PAYE and PRSI payable on wages and salaries.

Your business profits are liable to Income Tax. 

Capital expenditure

Loan repayments

You may also be making repayment over an agreed period to an investor or to the person from whom you bought your Guesthouse or B&B.

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Cost drivers

Costs are driven by three factors:

• Costs incurred at fixed times
• Costs driven by sales volume (that vary with sales)
• Costs driven by decisions you make (discretionary or one-off costs)

 
Costs incurred at fixed times

 
Fixed-costs include rent and rates, lease of equipment, bank repayments, insurance and accounting fees. These costs are fixed on a weekly, monthly or annual basis - you have little scope to avoid them although you may be able to reduce them.

Costs driven by sales volume

Variable-costs include purchases of food costs, part-time staff, electricity, heating, gas, VAT and PAYE. These costs vary depending on your level of business activity - the more sales you make the more variable costs you incur.

Costs driven by decisions you make

Decisions you make to improve performance, enhance customer experience or increase capacity, eg by adding more bedrooms, will give rise to:

• One-off costs
• Other discretionary costs

One-off costs

One-off costs often require a significant outlay. Finance usually needs to be arranged from lenders to fund one-off costs including:

• Set-up costs, eg fitting out bedrooms 
• New kitchen
• Hazard Analysis and Critical Control Points (HACCP) compliance

Other discretionary costs

You can control the timing and amounts of discretionary costs. These are often incurred when you want to increase capacity by improving performance or by enhancing the customer experience.

Examples of discretionary costs include:

• marketing and promotional spend.
• instructor / staff training and development.
• new menus.

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