What's the best way to budget for fluctuating expenses?
Answered by:
Mike Grover
The Alternative Board - Santa Clarita
2 Questions answered
Answered on September 6th, 2019
Start by tracking (recording) your expenses month to month for a year. This will show you the variability. If you just use the average of each expense line you will have good months and bad ones. I recommend you use the highest amount of each expense line as your benchmark. Now figure out the revenue pipeline you need to cover those “upper control limits.” At the end of the year you will have a surplus because you are managing to the worse case scenario.
1 Reply
Mike Beuerlein
from Unified-Finance Organization
Excellent advice! Many of our clients have very seasonal revenue as well. By projecting seasonal variations in revenue with fixed vs. revenue or volumetric fluctuations in expenses, we've been able to come up with very accurate projections of short term or bridge funding needs. Most start-ups do not have the luxury of budgeting to a worst-case scenario!
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