How to Calculate a Yearly Expense Forecast

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Projecting expenses is also known as your pro forma expenses.
Projecting expenses is also known as your pro forma expenses. (Image: Stockbyte/Stockbyte/Getty Images)

A yearly expense forecast is an estimation of the amount of expenses you will incur in your business for next year. You need to make the assumption that given all things being equal if your gross receipts remain the same as last year, your expenses will remain the same. This is not always true due to inflation, but you can take this into account when performing you calculations for your projected expenses.

Analyze your prior year expenses. Eliminate any expenses you think were one time in nature, for example, a large repair that you do not think will happen next year. Add any expenses you think you may incur in the next year, for example, buying a new machine that you did not buy the previous year. As an example, assume you estimate your expenses for the previous year as $500,000 after taking out several one time expenses.

Estimate what your gross receipts will beo next year, so, determine if your sales are going to increase or decrease during the year. You can make the general estimate based on several factors, such as how sales were trending toward the end of the year or how much your sales have increased or decreased on average from year to year. In the example, assume you expect sales to rise 10 percent.

Multiply your sales increase of decrease by your adjusted previous year expenses. In the example, $500,000 times 10 percent equals $50,000. These are you adjusted expenses for the current year.

Add your adjusted expenses for the current year to the adjusted expenses from the previous year to calculate your yearly expense forecast. In the example, $500,000 plus $50,000 equals $550,000. So, you are estimating you will have $550,000 of expenses for next year.

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