Accurate Expense Forecasting

Business.com / Strategy / Last Modified: February 22, 2017

Salaries, raw materials, business taxes, office rent, equipment leases, phone bills, postage — it seems like there's no end ...

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:

  1. Avoiding cash flow crunches
  2. Keeping your company afloat during lean times
  3. Keeping your credit rating in good standing
  4. Assisting you in pricing products and services
  5. Facilitating your ability to obtain loans and lines of credit
  6. 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.

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.

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.

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.

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.

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