Thankfully once you have completed the revenue predictions, the expenses should be a lot easier, putting aside the tax obligations, Vat and employee-related taxes.
I suggest speaking with your accountant about these figures and how they will affect your forecast, as it can change from year to year.
We will look at the correlation between revenue and expenses, called Cost of sales or COS for short.
There are two elements to take into account,
1) The maximum amount you can supply based on labour or asset limitations. Take, for example, a wedding photographer that does wedding that is mainly hosted on the weekend. If this photographer wanted to expand to 6 or 8 weddings per month, he would have to hire another photographer as he could not be in two places simultaneously. Furthermore, if our bakery shop wanted to ramp up production, they would need a new oven or more staff to bake the products. This is important to note and consider when looking at your company’s maximum output and what expenses would increase with the increase in sales.
2) The cost of providing a service or product. This is easier to calculate than above and may decrease with higher sales, for example, better margins when buying baking material in bulk. It is essential to correlate this in your spreadsheet, as the expenses are directly linked to a sale. Furthermore, if this affects your business, a margin of error can be added, such as products not sold or returned.
In the next lesson, we will talk about our marketing plan, giving you more insight into marketing spending, the cost of marketing per sale or CPA ( Cost per acquisition ).