Projected Costs

Projected Capital Spending

Projecting capital spending involves determining what property, vehicles or equipment will be needed to support the sales forecasts.

The following steps should be followed when projecting capital spend:

• Ask yourself what assets you are going to need.
• Estimate their expected cost as well as any payment terms.
• Estimate their useful life spans, residual values and any other costs or benefits.
• Determine the method of depreciation that you should use.
• Draw up a depreciation schedule.
• Set the cost of the acquisitions against your bank balance (offset by an increase in fixed assets).
• Record depreciation as an expense.
• Record any other possible expenses, such as maintenance costs or insurance.
• Take note of any benefits that the assets would have that might impact on other aspects of your projections (for example, better machinery might equate to higher levels of production).

Projected Employee Costs

Projecting employee costs is fairly simple – use each person’s cost to company and take into account any additional employees that may be required based on your forecasts and their costs to company.

Remember that employee costs include the following:

• Salaries and wages
• Overtime
• Bonuses

Benefits such as pension and transport allowances.

Other costs such as recruitment costs and training costs.

This information may be readily available from your Human Resources department or you may need to calculate your own breakdowns per staff member.

Projecting Non-Employee Costs

Non-employee costs would include all those costs not associated with employees. Once you have your forecasts, you can estimate these costs.

Examples of operating costs would be:

• Marketing and sales related costs
• Communications costs such as telephone and internet
• Fees such as legal or accounting fees
• Occupancy costs such as security, water and electricity
• Computer costs
• Office costs such as stationery
• Travel costs such as petrol and vehicle rentals
• Other fees and costs such as insurance and bank charges

To assist with financial statement projections, you should do separate workings for those employee and non-employee costs that relate to cost of sales and those workings for employee and non-employee costs that relate to other operating costs.

Projecting Other Income and Costs

Other income and costs that can be included in your projections include things like investment income and taxation.

Projected Financial Statements

Once you have your forecasts and estimations, you can actually create projections that take the format of your financial statements.