The next step in the budgeting processes is to estimate the operating costs of the company.  Let’s start with the costs that are recurring.  You should already know or have a good idea what these costs are.

• These are the cost that you would pay, no matter the amount of business you have.

• Look through your check register and credit card statements.

• Another good place to refresh your memory is to refer to the invoices from the previous year.

• Look for items like subscriptions, office rent, utilities, and office staff wages to name a few.

• Now distribute the costs based on the time span you have chosen for your budget.

Budgeting gross profit for retail is probably the least completed of any industry, but still extremely important.

• As with the production industries, companies that resell tangible items must know what price the market will bear for their products.  Determining a sales price can be any method, from an in depth market study, to a simple exercise in shopping your competitors.

• Next you will need to know how many of your products you will be able to sell in each of the next twelve months.  Again what the market will bear.

• If your company is in resale, your cost of goods sold is the price you can obtain inventory, plus any carrying costs.  Carrying costs can be interest to finance the inventory, the warehouse to hold the inventory and freight to transport the products to the warehouse.

• To determine revenue take the number of units you will be able to sell each month times the market price you have determined.

• For the cost of goods sold the calculation is the number of units sold each month times the cost to product one unit.

• Now subtract the monthly cost of goods sold from the monthly revenue to obtain the gross profit.

Budgeting gross profit for products, services, retail or projects each have different requirements.  Let’s start with services this week.

• In the service industry your time and your employees’ time is what’s for sale. Once you know what the market will bear for your services you can attach a billable rate to yourself and each employee.

• Next you will need to know how many hours are available to bill out.  When calculating this number consider things like travel time, company meeting time and any other functions that might need to be performed by yourself or employees that cannot be charged to your customers.

• Now that you have total billable hours and rates for yourself and employees put the two together for each month.  This will be your total gross revenue on a monthly basis.

• Cost of Sales is the next component of gross profit.  How much will you pay each person?   You can incorporate payroll taxes and benefits in this number or these costs can be included with overhead.  I would suggest that you follow what is typical in your industry.  You can find industry information at   Free Industry Reports,   or for more in depth information   Prime Industry Reports.

• To finish calculating your gross profit, subtract the monthly cost of sales from the monthly total revenue.