The beauty of an operational expense forecast is the clear picture of the money it takes for your organization to make money. You have heard it before; it takes money to make money. But, you better prepare for how much money it takes or you won’t be able to make more.
It takes money to make money
Forecasting your operating expenses helps to plan your future. It’s much like the budgeting you do in your own home. An operational expense forecast takes into account the things you need to run your business. Consider the constants: rent, insurance, software, membership dues, subscriptions. Think of your fluctuating costs: electricity, supplies, water, payroll, inventory. As an established business, you can use your accounting data to develop a basis for your forecast. If you are a start-up, you will need to do some research.
Historical data is very important
By looking at past year’s expenses, patterns emerge and those fluctuating costs become a bit more predictable. If your inventory cost has increased by 2% every year for the last few years, you can plan ahead for a 2% increase in the coming year. When your historical data shows the surge in utilities cost over the hot summer, you have a baseline for predicting the cost for the coming year.
Insight into the future
The operational expense forecast also lets you know if you have enough left from the “needs” to run your business to afford the “wants”. You are able to make decisions about what “wants” you are ready to move forward with. Maybe you want to update your IT infrastructure. With a solid forecast based on your data, you will know if it is a possibility this year. That same forecast gives you an insight into your ability to provide raises or bonuses. The key to a reliable forecast is reliable data. With quality information, you can create a dependable prediction. And you will know just how much money it takes to make money.