- Writing a Business Plan
- Financial Statements
- Business Forecasting
- Business Checklist
BUDGET 9 - DEVELOPING YOUR OPERATING EXPENSES BUDGET
Operating Expenses consist of goods or services used or consumed in operating a business. Operating Expenses consist of two categories; Marketing Expenses and Administrative Expenses.
Marketing Expenses are expenses that DIRECTLY relate to the selling of a product or service. Examples of Marketing Expenses include; advertising expense, sales force salaries, sales displays expense, brochure and pamphlet expense, sales promotion expense, and so on.
Administrative Expenses, on the other hand, are expenses that do NOT directly relate to the selling of a product or service; they are, however, necessary in operating the business. Examples of Administrative Expenses include; offices salaries expense, office supplies expense, office rent expense, insurance expense, utilities expense, delivery expense, maintenance expense, telephone expense, company registration expense, bank service charges expense, depreciation expense and so on. For additional examples of operating expenses, please refer to the section entitled "Operating Expenses".
Your task in the Operating Expense Budget is two fold:
1. Determine Your Monthly Marketing & Administrative Expenses;
2. Determine Your Annual Forecasted Marketing & Administrative Expense
The first component of the Operating Expense Budget will become part of your Monthly Forecasted Cash Flow Statement, while the second component will become part of your Forecasted Income Statement.
It's extremely important to do your calculations on a per year basis. In other words, Murray's Marketing and Administrative Expenses for 200X would be forecasted between July 1, 200X and December 31, 200X (IE his planned start date TO his 200X year end). His Marketing & Administrative Expenses for 200Y would be forecasted between January 1, 200Y and December 31, 200Y (IE the beginning of his new business year to his 200Y year end) And if he had been forecasting for 200Z, his Marketing & Administrative Expenses for 200Z would be forecasted between January 1, 200Z and December 31, 200Z (IE the beginning of his 200Z business year to his 200Z year end).
Assume Murray forecasted the following Operating Expense Budgets for 200X and 200Y. Click on each item below to see how he calculated (arrived at) each of the account balances (dollar values).
Be sure to pay attention to when Murray expects to pay for each expense item (referred to as cash outflows). This timing of cash outflows creates the foundation for his 200X and 200Y Forecasted Cash Flow Statements.
|SCHOLARSHIP INFORMATION SERVICES
OPERATING EXPENSES BUDGET
FOR YEARS ENDING DECEMBER 31, 200X AND 200Y
|Promotional Pamphlet Expense||$4,000||$2,000|
|University Advertising Expense||$8,000||$12,000|
|Newspaper Advertising Expense||$25,998||$34,998|
|TOTAL MARKETING EXPENSES||$37,998||$48,998|
|Office Salaries Expense||$15,600||$36,400|
|Employer Costs (11% of Salary)||$1,716||$4,004|
|Office Supplies Expense||$2,500||$3,000|
|Business Cards, etc. Expense||$250||$0|
|Printing of Checks Expense||$75||$0|
|Message Center Expense||$4,600||$8,600|
|Toll Free Services Expense||$9,600||$19,200|
|Credit Card Service Expense||$4,992||$9,216|
|Bank Charges Expense||$240||$480|
|Depreciation Expense, Auto||$1,000||$2,000|
|Depreciation Expense, Office Equipment||$1,400||$3,200|
|TOTAL ADMINISTRATIVE EXPENSES||$46,173||$92,100|
|TOTAL OPERATING EXPENSES||$84,171||$141,098|
As you can see, Murray is forecasting his 200X Operating Expenses to be $84,171. These accounts and account balances (dollar values) will appear on his 200X. In addition, Murray is forecasting his 200Y Operating Expenses to be $141,098. Similarly, these accounts and account balances (dollar values) will appear on his 200Y
This concludes our discussion on "Developing Your Operating Expense Budget". To summarize, the Operating Expense Budget consists of two main components; namely,
1. - Determine Your Monthly Marketing & Administrative Expenses;
2. - Determine Your Annual Forecasted Marketing & Administrative Expense