The “Expenses” tab in Business Model Forecast is where you are building your expenses forecast. In this tab, you have to specify information about common expenses (one-time or occasional expenses should instead be completed in the “Investments” tab). One line is for one kind of expense.
In Business Model Forecast, expenses are calculated automatically based on the sum of a fixed annual amount and a variable amount (% of revenues). This is a way to estimate easily and quickly expenses with a simple and relevant approach. Forecasting expenses for startups is usually tedious, difficult and not very informative. We designed Business Model Forecast with the 80/20 rule in mind to help entrepreneurs building financial plan with ease. That’s why we decided to use this approach for calculating expenses.
There are here 3 different kinds of informations to complete in this tab :
- Description : Fill-in a short description of the expense.
- Fixed annual expenses : Fill-in here a minimum annual amount you forecast for this kind of expense. Business Model Forecast use this amount as a fixed expense to calculate automatically the global expense to forecast.
- Variable expenses (% of revenues) : Fill-in here a % of revenues that will be used as a variable base to calculate automatically the global expense to forecast.
So one kind of expense is calulated like this :
Annual expense = Fixed annual expense + Variables expense x revenues
Note that, for the 1st and 2nd year, Business Model Forecast will split the fixed expense equally between the 4 quarters.
So to forecast your expenses, you can either use both fixed and variable expenses, or you can also choose to use only one one them (only a fixed amount of expense, or instead only a variable amount of expense). For each kind of expense you can choose something different.
You can also notice that Business Model Forecast is already pre-filled with different kind of common expenses and with some default numbers. We decided to do this to help entrepreneurs forecasting their expenses. It’s a beggining that can be then easily customized to the specificity of each startup.
Let’s have a look to the picture example above to better understand how to complete this expenses tab. In this example, their are all the pre-filled information suggested by Business Model Forecast (no modification for this example) and also 3 other kind of custom expenses (called “Other expenses #…”). As you can see, our financial tool automatically calculate expenses for the 5 years based on the “fixed annual expenses”, the “variable expenses” and the revenues. Here, revenues are based on the hypotheses of our previous post on “how to complete the Revenue tab”. You can also notice, that in this example the “other expenses” were filled-in with either only fixed expenses, or only variable expenses, or even both. So, it’s an example to show you what is possible with Business Model Forecast.