See Also:
Capital Budgeting Methods
Zero-Based Budget
Cash Flow Projections
ProForma Financial Statements
Proforma Earnings
Make Educated Estimates for Annual Budget
How do you estimate expenses for annual budget in your company? Estimating expenditures for your business can be much more than just a guess. You can use data and previous experience to make an educated estimate, therefore, creating a much more realistic budget.
A budget is only successful if the expense and income estimates are feasible. This means that whatever you put on paper can only work, if it is possible. This is where making educated estimates is going to be much more useful than a simple guess.
The steps you will need to take in order to make an educated estimate are as follows:
1. Start with what you know. If you know that the rent on the building will always be $1,000 this becomes an expenditure that you know. If you know that every month for the last three months you have spend $300 on supplies for productivity, then estimate that you will be doing the same.
2. If you anticipate increased/decreased expenses due to external economic factors, increased sales resulting from added expenses (ex: marketing), or other changes in expenses due to market/business factors (ex: insurance premium rate changes), it is recommended to use percentage changes if dollar figures are unknown.
3. Be sure to look at any previous data you have gathered where your expenditures are concerned. The more data you have, the better your educated estimate will be. This is because patterns are bound to repeat themselves.
4. Do not be afraid to over estimate. It is better to have a little extra ready for expenses, than to be short of it. For instance if know your communication expenses have been averaging $545.00 per month then up your expense to $600 per month.
5. Also do research of other business that are similar to yours. Ask other professionals who work in your business, or other businesses what they would estimate for their expenses.
Conclusion
Overall the best way to make educated estimates on your expenses is to know as much as you possibly can about what you need to pay out. Expenses are not always precise. They may be something that you will need to at least be prepared for. So if possible always allow a little extra for the unexpected. Because expecting the unexpected will help you to be prepared for those expenses you do not plan on.
These ideas should help you to be prepared for estimating for your expenses for your business when writing an annual budget. Keep in mind that the best budget allows for some flexibility.
