Anticipating future scenarios is essential to lead a healthy economy within the company. The forecast of expenses is a key piece within the strategic plan and planning business. Not only because of the income or the costs of executing operations, but also determining possible incidents, unforeseen events, as well as the ability to adapt to the future wishes of customers, are part of the forecast of expenses.
In this article you will learn not only to know what the expense forecast is, but also how to prepare a forecast that can help you for your business. And of course, this can also be extrapolated to the family economy. Thanks to this, you will be able to make better decisions, by estimating the impact that it may have on your accounts.
What is the Expense Forecast?
As we explained at the beginning of the article, the forecast of expenses tries to anticipate future movements that may affect the company. Thus, it is a tool to determine what expenses will there be in the future with the aim of making the most appropriate decisions about planning, strategy and feasibility. Both the future movements of the market, as the future wishes of the clients, as the price in the operations, production and rents.
To carry out a good analysis, the accountant or accounting department must know interpret the context in which the company finds itself. The purpose pursued is to achieve the long-term objectives set, and the forecast of expenses is a transcendental piece in achieving said objectives. The forecast of expenses, therefore, will determine the future figures that are going to be handled, as a result of also interpreting what has happened in the past, transferring it to the current context, in order to make a future projection.
Because it is important?
Keep in mind that in the forecast of expenses, the person or persons in charge of carrying out the calculation must be aware of the future projects of the company. Knowing in advance the cost that new investments or strategies will require will help to know to what extent something is viable and can materialize. It will also help to know what financing capacity the company has to carry out the objectives set.
- more successful goals. The realism that transfers the forecast of expenses allows the company to have knowledge about its pretensions. Know what financing is available, if it is realistic to achieve the goals and not fail in your plans, creating frustration for not reaching them because you have not done it before.
- Financial Security. It provides security to the company's financial accounts by providing provision and protection of resources. In turn, it prevents any type of fraudulent use of funds.
- Improvement of business management.
- Increase in the number of sales. Being able to expand the growth of the company and having more efficient management of its resources and demand will make the company's operations grow.
Not only the companies already established, the forecast of expenses is also something to account for in new companies that are going to start the business. For this reason, it is easy to confuse the terms “expense forecast” with “expense provision”. The provision for expenses refers to a liability that the company saves to face with resources future payments that it estimates will arrive. This means that the company saves those resources, it does not spend them on other things and the amount is usually an estimate. Both terms are similar, but they are different things.
How to make an Expense Forecast?
Depending on the type of business, some sections or others will have to be included in the Excel sheet. For this, the parameters that are usually calculated are the following:
- Tax costs. When forecasting expenses, VAT payments or company taxes, among others, must always be taken into account. Of the same, property rights, software licenses or fees must be included in the provision.
- Suppliers and Logistics Costs. Each of the parties involved in the supply chain are of special relevance. Depending on the type of business, some will have fixed costs, variable costs, or both. In the case of the variables, it is likely that they are related to the volume of sales or reservations that the company has.
- Investments. All those operations that foresee an operational increase through new acquisitions. Whether raw materials, rental or purchase of machinery, etc.
- Financing. In case of having credits or future financing lines are foreseen, they must be accounted for within the forecast.
- Advertising and marketing. If required, determine the amount necessary to operate or disclose the activity.
- Supplies. Everything that the company needs to function. They are those related to electricity, water, light, fuel, telephone, etc.
- Treasury and Social Security. All the expenses that the company or entrepreneur must pay to the two administrations.
- Workers template. In which the expenses of all the contracted personnel are collected.
Determining the expenses of an activity in advance will be very important to know its continuity. And above all, if you start, essential to know its viability. In this way, surprises that are not usually very pleasant can be minimized.
If you're new, here's one last section with some tips.
Tips to consider
From personal experience, give yourself time to develop an expense forecast that is realistic. Sometimes, the illusion can blind something that we have in front of us and although it is obvious later, a priori it is not seen. Large expenses, such as machinery, premises, or depending on what we need, are some of the most obvious. However, where I have seen more people fail is in those payments that appear by "surprise". Really, if a coherent forecast is made and leaving all the threads tied, that should not happen.
If you are new, I also encourage you to look for information about the business you have or want to carry out, to find out about future payments that may take place and that you may not have contemplated or ignored. It's easy to get confused, especially when you have many things on your mind. But if you do it well, and manage to anticipate billing, the solvency and realization of your projects will be much more likely.