How to forecast business expenses for a startup?

You will find a tool to forecast business expenses tailored to your project in our list of 250+ financial plans

All our financial plans do include a tool to forecast business expenses .

How can you easily forecast your business expenses without getting overwhelmed?

In this article, we provide a free tool to do so. If you're looking for something more tailored to your specific project, feel free to browse our list of financial plans, customized for over 200 different project types here.

We'll also address the following questions:
What’s the best way to accurately estimate my initial startup costs?
Which tools are useful for forecasting business expenses?
How should I account for variable expenses in my financial forecast?
How much of my revenue should go towards marketing expenses?
What’s the method for forecasting my monthly operating expenses?
How can I effectively manage unexpected expenses?
How frequently should I review and update my expense forecasts?

Here Are the Steps to Easily Forecast Your Business Expenses

To skip all these steps, you can simply download a financial forecast tailored to your industry.

• 1. Identify Key Expense Categories:

  Start by listing the main categories of expenses your business will incur. Common categories include software development, marketing, salaries, and operational costs. This helps in organizing and managing your financial planning.

• 2. Estimate Costs for Each Category:

  For each identified category, estimate the costs involved. For example, determine the duration and cost of software development, monthly marketing expenses, salaries for your team, and operational costs like rent and utilities.

• 3. Calculate Monthly and One-Time Expenses:

  Distinguish between one-time expenses (e.g., initial software development) and recurring monthly expenses (e.g., salaries, marketing). This distinction helps in understanding the cash flow requirements over time.

• 4. Project Monthly Expenses Over a Year:

  Multiply the monthly expenses by 12 to get the annual cost for each category. For example, if marketing costs $10,000 per month, the annual marketing expense would be $10,000 x 12.

• 5. Sum Up All Expenses:

  Add up all the one-time and annual expenses to get the total forecasted expenses for the first year. This gives you a comprehensive view of your financial needs.

• 6. Review and Adjust:

  Review your expense forecast and adjust as necessary. Consider potential changes in costs or additional expenses that may arise. This step ensures your forecast remains realistic and adaptable.

A Simple Example to Adapt

This is a simplified example. For a more exact and precise estimate without needing to calculate, use one of our financial forecasts tailored to 200 different business types.

To help you better understand, let's use a made-up example of a startup planning to launch an online subscription service for fitness coaching.

First, identify the key expense categories: software development, marketing, salaries, and operational costs. Assume the software development will take six months and cost $50,000.

Marketing efforts, including social media ads and influencer partnerships, are projected to cost $10,000 per month.

The team consists of three employees: a developer, a marketer, and a customer service representative, with monthly salaries of $5,000, $4,000, and $3,000 respectively, totaling $12,000 per month.

Operational costs, such as office rent, utilities, and miscellaneous expenses, are estimated at $3,000 per month.

To forecast expenses for the first year, calculate the total for each category. Software development is a one-time cost of $50,000.

Marketing for 12 months is $10,000 x 12 = $120,000.

Salaries for 12 months are $12,000 x 12 = $144,000.

Operational costs for 12 months are $3,000 x 12 = $36,000.

Summing these, the total forecasted expenses for the first year are $50,000 + $120,000 + $144,000 + $36,000 = $350,000.

By breaking down the expenses into manageable categories and calculating each one methodically, you can easily forecast your business expenses without getting overwhelmed, resulting in a clear and comprehensive financial plan for the first year.

Our financial forecasts are comprehensive and will help you secure financing from the bank or investors.

Common Questions You May Have

Reading these articles might also interest you:
- How do you forecast your startup's monthly operating expenses?
- How to forecast variable and fixed costs?
- A free example of a 3-year balance sheet

How can I estimate my initial startup costs accurately?

To estimate your initial startup costs, start by listing all the necessary expenses such as equipment, licenses, and initial inventory.

Research the average costs for each item in your industry to get a realistic figure.

Typically, initial startup costs can range from $10,000 to $50,000 depending on the business type and location.

What tools can help me forecast my business expenses?

There are several tools available such as QuickBooks, Xero, and FreshBooks that can help you track and forecast expenses.

These tools offer features like expense categorization, automated reports, and integration with bank accounts.

Using these tools can simplify the process and provide more accurate forecasts.

How do I account for variable expenses in my forecast?

Variable expenses, such as utilities and raw materials, can fluctuate based on business activity.

To account for these, use historical data to identify trends and average out the costs over a period.

Typically, variable expenses can constitute 20% to 30% of your total expenses.

What percentage of revenue should be allocated to marketing expenses?

Marketing expenses can vary widely depending on the industry and growth stage of the business.

On average, businesses allocate 5% to 10% of their revenue to marketing efforts.

For startups, this percentage might be higher to build brand awareness and customer base.

How can I forecast my monthly operating expenses?

To forecast monthly operating expenses, list all recurring costs such as rent, salaries, and utilities.

Use historical data or industry benchmarks to estimate these costs accurately.

Monthly operating expenses typically range from $2,000 to $10,000 depending on the business size and location.

What is the best way to handle unexpected expenses?

To handle unexpected expenses, create a contingency fund that is 10% to 15% of your total budget.

This fund can cover unforeseen costs such as equipment repairs or sudden market changes.

Regularly review and adjust your budget to ensure you are prepared for any surprises.

How often should I review and update my expense forecasts?

It is recommended to review and update your expense forecasts on a monthly basis.

This allows you to adjust for any changes in the market or business operations.

Regular reviews help in maintaining accurate and realistic financial planning.