Determining Expense Budgets
Budgets for each expense must be established, considering both external and internal factors, as in sales forecasting.
In determining expense budgets, the following would be considered internal factors:
- Corrective actions planned to bring excessive expenses in line.
- Policy changes such as new commission plans.
- A commitment such as equipment purchases, leases on new facilities, or professional service contracts.
- Planned salary increases.
- Planned changes in benefit programs.
- Additional personnel.
- Promotional plans.
External factors could include the following:
- Inflation and its effect on price increases from suppliers.
- Tax rate increases including payroll taxes, local property taxes, inventory taxes, and so on.
- Utility rate increases.
Additionally, the interrelated effects of expense increases must be considered. For example, payroll increases will increase payroll taxes and, possibly, employee benefits. Rent on larger facilities can also involve additional utilities expense.
Reevaluating the Plan
Once an initial plan has been established, it is often useful to review it in order to identify areas of further improvement.