Armed with your calendar of planned activities, goals and benchmarks, open your accounting program and print out a report of your full year’s monthly costs for 2012. If your software can print out a profit & loss or income statement, use that. What you are looking for is a list of your fixed and recurring expenses each month. if your software can’t supply these reports in printed form, go through each month’s numbers and copy them to a spreadsheet.
Your financial planning cost spreadsheet should have a column listing expense categories, 2012 totals for these expenses, and columns for each month of 2013, plus a 2013 totals column.
It is helpful to divide your expense categories into Production Expenses (if you produce products, including analytical services that require research and writing), Sales Expenses (commissions and costs directly connected to making the sale), Marketing (travel and entertainment, seminars, printed marketing materials, website and blog costs), Advertising (print, radio and television advertising costs including graphics work and copy writing for those ads), and Inventory Cost (if you sell products) or Manufacturing Costs, Raw Materials, Warehousing, Internal Logistics, etc. These expenses produce revenues, but are not necessarily the way an accountant would organize your costs. Looking at costs that are directly related to revenue production will help you understand how money flows through your company.
Continue your list with Administrative Expenses which include Office Rent, Equipment Purchased, Equipment Leased, Electric/Gas Utility Costs, Telephone Costs, Internet Costs, Software, Insurance, Office Supplies, Furnishings, and anything else that is overhead. By overhead, I mean things that keep your business running but do not directly contribute to creating revenues. If you need to cut back expenses, this is where to start.
Then detail your Personnel Costs divided into employees who produce revenue and those who perform administrative tasks.
Last, list your debt payments divided into those that support your revenue creation and those that support administrative costs.
Consider how these expense categories affected your profitability during 2012. How many cost more than they produced toward your bottom line? Often, our administrative expenses expand during good times and, during lean times, are still there costing money.
Just looking critically at your list of expenses during 2012 probably has given you some ideas regarding how you want to spend your money during 2013, so start making notes and filling in the monthly figures for 2013.
To be on the safe side, increase those costs based on some estimate of inflation. You can use the Consumer Price Index (CPI) or figure the percentage expansion in expenses you actually experienced during 2012.
Add in the estimated costs associated with your strategic plans, from your calendar and notes. Keep your estimates a little on the high side to make sure you don’t run into a financial surprise just when you are ready to commit money to a key project.
Figuring costs is the easy part. Once you are finished, your next task will be far more creative – estimating revenues.