3) Build your Expense Forecast
Cost of revenue & operating expenses will make up the remainder of the costs to your business. Once input you will have visibility on expected burn rates, as well as an understanding of what costs you have control over and can adjust based on the cash situation of your business.
Profitual Platform Guide:
Expense Forecasting Steps:
Step 1: Existing Expenses
The first step in forecasting expenses is to build out your current costs. Depending on the stage of your business you may track your existing costs using:
- Bank & credit card statements
- Excel / Google Sheet
- Accounting Software (Quickbooks Online, Xerox, etc...)
- Contract Bookkeeper
Step 2: Categorize Existing Expenses
Leverage the information you have from Step 1 as a starting point. Analyze your existing costs and begin to bucket them into categories to track in your forecast. We will forecast based on department:
- Cost of Revenue - Directly involved in providing/creating your good or service
- Cloud hosting costs for Software, Material costs, Data storage, Onboarding/implementation costs, software tools of support team, storage & distribution
- Research & Development - create, design, and maintain your product
- Software tools for R&D team, prototyping & development costs, User research and feedback, Patent application costs, trails and testing, design and contractor costs
- General & Administrative - core business operators
- Accounting, Legal, Human resources, insurance, email, Slack, patent maintenance
- Marketing & Sales - generating leads and acquiring customers
- Advertising, travel, sales costs, commissions
The departments above each have a specific table in our Profitual platform. The categories you allocate expenses to within each category will determine the structure of your Income Statement as described in the Profitual Platform Guide above.
Step 3: Future Expenses
Plan future costs your business will require to meet business objectives and when you will incurring those costs. Consider the following:
- Product development - complexity, and timeline to build your product
- Go-to-Market - when do you plan to start selling, how will you generate leads prior to sale, who will coordinate marketing efforts
- Customer support - when you have customers who will manage them, support issues & questions they have, onboard those customers
- Administrative needs - what administrative needs will the business take on as it grows, when does it make sense to hire this role vs. contract in support [EX// contract bookkeepers, fractional CFO]