110 | HOW TO WRITE A BUSINESS PLAN
businesses call in some temporary
employees as needed. All such wages
are a fixed expense. To fill out line 4a,
you’ll need to know how many people
you’ll hire, how many hours per month
each will work, and how much you’ll
pay each person. If you plan to pay
yourself a regular wage, regardless of
how profitable the business is, include
your salary as well.
Fill in the gross amount, before
employee withholding deductions, you
will pay every month for wages and
salaries. (If you don’t know, or aren’t
sure how this works, turn to Chapter 8
for a complete discussion.)
CAUTiON
Certain wages aren’t fixed expenses.
Some small manufacturing businesses pay
workers on a piece-rate basis or hire employees
when orders are high and lay them off when
business is slow. Others don’t pay a salary at all,
but compensate workers with a commission
for each sale. In all of these situations, the
portion of the wages that changes with each
additional unit of production should be
considered a variable cost of sale. Those costs
belong in the cost-of-sales category and not
the fixed-expense category.
4b. Payroll Tax. As an employer, you’ll
pay the federal government taxes of
approximately 14% of your employees’
wages and salaries. It is your contribution
to your employees’ Social Security
program. Multiply each month’s dollar
figure for wages and salaries by 14%
(0.14). For example, if employees receive
$4,5 60 in wages and salaries in May, the
payroll tax is $638 ($4, 560 × 0.14 = $638).
In other words, the employees in this
example cost the employer $5,1 98 in May
($4, 560 + $638 = $5,198) even though the
employees’ gross pay is only $4,560.
These tax rates change from time to
time. You can call the IRS for current
rates. Most states have additional taxes
not included here that vary from state to
state. (Workers’ compensation insurance
is covered in line 4e, below.)
4c. Rent/Lease. Rent is the next major item
to consider, unless you plan to operate
out of your home or some other space
that will not result in additional out-
of-pocket costs. If you’re not renting
commercial space, however, bear in
mind that local zoning laws may affect
you. You’ll want to check out zoning
ordinances before going ahead with
your plans.
If you don’t already have a spot in
mind, check building availability and
costs by talking to a commercial real
estate broker and people who occupy
space similar to the one you have in
mind. You should know what kind of
location you want by now—for instance
whether you need high visibility or
whether an obscure, low-cost location is
just as good. You should also know how
large a space you need, what plumbing,
electrical, and lighting you want, and
how much storage you need. Sometimes