Expense Forecast

Expense forecasts help businesses plan spending, set budgets and predict profit and cash needs. They usually separate costs by type and by how they behave.

Variable costs, such as materials, delivery and sales commissions, rise and fall with sales, so they are often forecast as a percentage of revenue. Fixed costs, such as rent, insurance and most salaries, stay roughly the same regardless of sales and are forecast based on contracts and plans. Some costs are one-off, such as moving offices or launching a new product.

For example, a business might forecast materials at 40% of sales, rent at 5,000 a month, staff costs based on its hiring plan and marketing at a planned 8,000 a month.

Inflation and known changes, such as a new lease or a wage increase, should be built in. Comparing forecast expenses with actual results each month helps managers spot overspending early and improve future forecasts.