Factoring Loans - The budget Process - Part 4 What? (continued).

In our last article (click this link to see the previous blog entry entitled Factoring Loans - The budget process - Part 3 What?) we discussed what we should be forecasting in our annual budgets.  We focused on Top Line Revenue as the starting point for all of our budgeting.  In today's article we will focus on estimating the fixed expenses that go into our budget.

Now that we have a gross revenue number we are comfortable with we need to start thinking about the expenses it takes to produce the forecasted revenue.  I always start with our historic expenses and go through each line item and think about what we will need to add or subtract to meet our budget.  Start with the largest expense item and think about how they relate to your revenue forecast.  The large expense items that make affect your income statement are different for every business.  In our factoring loans business, the biggest fixed expense we have is labor so that is where we start our analysis.  We expect big growth for 2012 because of current market conditions and the ease of use of our system.  We know that every so many clients we add we need to have an account executive to service the accounts. If you are a manufacturing firm you may have to add fixed assets like equipment in order to expand.  

In general, spend the most time on the largest expense items.  Once you have finished with the largest expense items you should be able to estimate the rest of your expenses as a percentage of the increase in your revenue.  If you expect revenue to grow by 25% then unless you have information to the contrary, you can expect other expenses to grow linearly with the increase in revenue.  As as example, if you spent $10,000 last year on shipping costs you can estimate those costs to be approximately $12,500 this year if revenue is growing by 25%.

In our next entry we will be discussing how you should estimate balance sheet items based on the work you have done in forecasting your profit and loss statement.

To learn more about our all electronic factoring loans click the link below or give us a call at 888.833.2286.