How to Calculate Forecasted Expenditures
Running a business typically requires owners or manages to make financial forecasts. These reports allow companies to determine the expected amount of cash needed to operate the business. Forecasting expenditures involves either reviewing previous expense reports (such as a financial statement) to plan for future expenses or estimating expenditures for a new business. While the first process is typically easier than the second, both play a crucial role in managing a company's finances. Calculating expenses may be part of a company's annual budget process.
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Instructions
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Determine the necessary expenditures for running your business. These include wages, rent, vehicle leases, utilities, interest expense from loans, taxes, maintenance and other items.
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Calculate the percentage of sales for each expense. For example, if your rent expense is $12,000 annually and sales revenue is $175,000, the expense percentage for rent is seven percent. Compute this for each expense.
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Compare the percentages for each expense to the industry standard. This comparison allows business owners and managers to determine if they are overspending for business expenses.
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Write an expense budget. An expense budget allows companies to track expenses in a near real-time format. For example, if a company estimates advertising expense at $4,000 annually, a quarterly review of the budget can help determine where problems exist if the account is near its budget total.
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Tips & Warnings
Business software applications can help companies complete the expense forecasting process. These applications typically allow the company to gather data electronically and then funnel the information into a forecasting spreadsheet, which can shorten the preparation time for the forecast report.
Forecasting expenses is only a best-guess estimate. In reality, these numbers can be significantly different as companies go through their regular business operations. Overestimating expenses can help pad the forecast for additional expenses.
