Doing Projections in SurvivalWare – Part 2: Sales and Expenses

The first step in putting together a complete financial projection is to forecast Sales and Expenses.

 

This is part 2 of a 5 part series on how to create a cash flow projection using SurvivalWare and the generic financial model that comes with it.

 

  1. Getting familiar with the Forecast Tool
  2. Sales and Expenses
  3. Debt Service and Investment
  4. Working Capital
  5. Other Cash Flow

 

 

You can forecast Sales by product line, or just Sales in total – whichever you feel more comfortable with. 

 

For other line items, sometimes you will be forecasting rates or percentages instead of dollar amounts.  Gross margin is an example of this, as is Payroll tax %.  You’ll find that the rate has been calculated for you in the history time periods, so you can see what it has been before deciding what to use going forward.

 

Sales

 

If you’ve got two full years of history, and your sales are the least bit seasonal,  I would start with a seasonal forecast.  You have the option of forecasting each of 10 product lines separately, or entering one overall sales forecast.  Unless you have good records on the gross margins of each of the separate product lines, I would just forecast the total.

 

Here is some actual sales history from a lawn mowing business based in the Northeast U.S.  As you might expect, it is highly seasonal.

Two years of sales history

This is what it takes to do a seasonal forecast using the Forecast Tool:

Selecting the \" width=

And this is what the seasonal forecast looks like:

 

Graph of Seasonal forecast for Sales

Expenses

 

Some overhead items such as rent or salaries you’ll know the number and want to enter it by hand.  Others you’ll want to use the forecast tool to project a percentage increase over last year, or just use the year to date average.

 

Here’s a way to say “use the same values as last year.”  Mark a bunch of expense lines, and click on the Forecast Tool icon.  Then click “Last Year + X%” and leave X at 0%.

 

Use the same values as last year

 

 There are four special line items in the list of operating expenses that are calculated based on percentages:

 

  • Benefits
  • Commissions
  • Payroll Taxes
  • Royalties

 

Benefits

 

Sometimes benefits are fixed (e.g. health insurance), and sometimes they are better estimated as a percentage of total salaries and wages – e.g. 401k contributions.  If you enter a percentage on the Benefits % line, the percentage takes precedence.  The percentage is applied to Total Wages and Salaries, which is the sum of Salaries (Officers and Other), Commissions, and Bonuses. 

 

You can override that by entering zero for the percentage, and keying in dollar amounts (or applying the Forecast Tool) directly on the Benefits line.

 

Commissions

 

The percentage is applied to total sales to compute commission dollars.

 

Payroll taxes

 

This is the employer share of FICA in the U.S., and in theory should be 7.65% of total salaries and wages (the sum of Salaries, Commissions, and Bonuses).  Toward the end of the year, this percentage may come down if you have employees surpass the Social Security limit of $100,000 in earnings for 2008.

 

Royalties

 

This is for franchise businesses who must pay a percentage of sales to a franchisor.  The percentage is applied to Total Sales.  If you don’t pay royalties, just leave the percentage at zero.

 

The result of all this is a projection of Operating Income, which is where most people stop, but which is just one of four major components of  cash flow.

 

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