Accurate Expense Forecasting

Getting a handle on cash outflows can strengthen your financial standing

By Jenni Simcoe, Writer

Salaries, raw materials, business taxes, office rent, equipment leases, phone bills, postage — it seems like there's no end to the expenses associated with running a business. However, your ability to get a firm grasp on these cash outflows can play an important role in your ultimate success or failure. Whether you're contemplating a startup venture or you've been in business for years, accurately forecasting your expenses can benefit your enterprise in myriad ways, including:

Avoiding cash flow crunches
Keeping your company afloat during lean times
Keeping your credit rating in good standing
Assisting you in pricing products and services
Facilitating your ability to obtain loans and lines of credit
Helping you budget properly for growth

Include startup costs

Launching a business requires a host of one-time expenses, such as deposits, office furniture, leasehold improvements, signage, licenses and permits.
Try: Use the startup cost calculator from BusinessKnowHow.com to estimate your startup business expenses.

Include fixed costs

Fixed costs include taxes, office rent, utility bills, phone bills, insurance, legal and professional fees, postage, supplies, technology, salaries and advertising and marketing costs.
Try: Use the monthly business expense calculator from CSGNetwork.com to tally your totals. Find a number of additional operating expense calculators at iFigure.com or download a budget projection form from Gaebler.com

Include variable costs

Any cost that changes depending on the number of products produced or sold is called a variable cost. This includes charges for raw materials, supplies, packaging and transportation. Direct labor costs, such as sales commissions, also fall into this category.
Try: Download detailed expense estimate and expense budget templates — available in Excel from Microsoft — where you can list your variable costs. BPlans.com offers a number of business calculators that include variable costs.

Use forecasting software and services

Some software and Web-based application service providers (ASPs) have built-in forecasting and budgeting tools to help you get a handle on your expenses.
Try: Take an online tour or sign up for a demo of Alight Planning software, which provides budgeting and forecasting tools. Hyperion Budgeting and Forecasting Solutions combines sophisticated financial modeling with Web-based Microsoft Office Small Business Accounting offers over 60 customizable reports to aid in forecasting your budget. Web-based Expense Watch analyzes trends in your business expenses so you can improve the accuracy of future forecasts.

Compare forecasts to actual expenses

Improve your forecasting ability by comparing your forecasts to your actual expenses. Note where your forecast went wrong and why so you can improve accuracy in future forecasts.
Try: VirtualSpending.com software automatically calculates a comparison of your forecast figures with your actual expenses on a monthly basis.