Report name: Sample Forecast
How Forecast Overheads are Calculated
This is how Figurewizard calculates your overheads analysis. Fixed overheads are budgeted as straight values, variable overheads as percentages of sales
| forecast for year beginning the 1st. | May 2017 | May 2018 | May 2019 |
| Wages, Pensions and NI | 300,000 | 310,000 | 330,000 |
| Administrative Overheads and Expenses | |||
| Rent & Rates | 20,000 | 10,000 | 10,000 |
| Bank Charges | 800 | 1,200 | 1,500 |
| Factoring Service Charges | 0 | 0 | 0 |
| Rental of Equipment | 1,000 | 2,000 | 4,000 |
| General Administration | 80,000 | 110,000 | 125,000 |
| Legal & Professional | 4,000 | 4,000 | 5,000 |
| Total | 105,800 | 127,200 | 145,500 |
| Selling Overheads and Expenses | |||
| Advertising | 5,000 | 6,000 | 10,000 |
| Internet & Web | 4,000 | 6,000 | 6,000 |
| Motor, Travel & Entertainment | 16,000 | 22,000 | 30,000 |
| Carriage Out | 60,000 | 66,000 | 88,000 |
| Bad Debts | 46,125 | 50,738 | 67,650 |
| Charge Card Service Charges | 5,256 | 5,762 | 1,917 |
| Total | 136,381 | 156,500 | 203,567 |
| Depreciation | 10,876 | 17,543 | 20,290 |
| Operating Overheads and Expenses | 553,057 | 611,243 | 699,357 |
| Interest Charges | |||
| Bank | 3,105 | 2,622 | 60 |
| Hire Purchase | 1,957 | 4,848 | 4,768 |
| Loans | 0 | 0 | 0 |
| Factoring / Invoice Discounting | 0 | 0 | 0 |
| Total | 5,062 | 7,469 | 4,828 |
| Total Overheads and Expenses | 558,119 | 618,712 | 704,185 |
If you are looking to improve profit and cash fow forecasts, this is where you start.
It is recommeded you first use the What-If Calculator / Planner to estabish the total figure for overheads to be reduced. That's because as you change that, the minimum month's cash and undrawn facilities changes too, in real time.
The same goes for making changes to financing such as from the bank or other loans
Only those expenses concerned with the trading activity of the business, i.e. operations qualify as operating overheads. These are separated into their activities i.e. wages; administration; selling and depreciation.
These are the overheads (not incl. wages - shown separately) that are concerned with Adminstration, rent, legal and professional and so on. Their forecast yearly values will have been entered into the form.
Because they are fixed values and not dependent on volumes of trade, the system assigns them as equal monthly values.
The table below using our What-If Calculator shows how profits, cash and liquidity improve when reduced by degrees of 5%.
| Less | Fixed Overheads | Pre-Tax Profits | Plus/Minus Borrowings | Working Capital | Interest Charges | Bank Year-End |
| 0% | 130,000 | 99,443 | 53,854 | 63,022 | 5.062 | -35,439 |
| 5% | 123,599 | 101,135 | 47,319 | 68,493 | 4,807 | -28,905 |
| 10% | 117.000 | 107,890 | 40,785 | 73,965 | 4.553 | -22,370 |
The bigget overhead is almost always going to be that for wages (including director salaries) NI and pension contributions.That makes it the first to be controlled. The table below shows how reductions by degrees of 5% affect profits, liquidity and cash.
| Less | Wages | Pre-Tax Profits | Plus/Minus Borrowings | Working Capital | Interest Charges | Bank Year-End |
| 0% | 300,000 | 99,443 | 53,854 | 63,022 | 5,062 | -35,439 |
| 5% | 285,000 | 110,031 | 38,203 | 75,699 | 4,411 | -19,789 |
| 10% | 270,000 | 125,516 | 22,719 | 88,241 | 3,927 | -4,305 |
Reducing both wages and fixed overheads by degrees of 5% will of course show even more dramatic improvements.
| Less | Wages & Fixed OH | Pre-Tax Profit | Plus/Minus Borrowings | Working Capital | Interest Charges | Bank Year-End |
| 0% | 430,000 | 99.443 | 53,854 | 63,022 | 5,062 | -35,439 |
| 5% | 408,500 | 116,779 | 31,676 | 81,165 | 4,164 | -13,261 |
| 10% | 387,000 | 138,712 | 9,962 | 98,391 | 3,730 | -2,457 |
Our unique and powerful What-If Calculator can also be used in dozens of other combinations for planning and budgeting profits, working capital, cash-flow solvency and equity simply with single clicks of a mouse.
Financial fees such as bank, charge card or factoring service charges are part of the administrative function of the business and so belong in operating overheads.
On the other hand interest relates to servicing external financing debt which is not connected to trading. That is why interest is only charged to profit and loss after the operating profit has been calculated. Interest charges are nevertheless tax deductible.
Entertainment expenses, fines and provisions that do not involve cash (e.g. depreciation) are not tax deductible overheads. Depreciation is replaced by capital allowances, which often allow greater levels of tax relief than your depreciation charge would.
Labour, material and other costs that are directly related to the cost of goods for resale are added to the cost of purchases and not charged as operating overheads. These will include inward freight, labour, materials or depreciation charges for equipment specifically used in processing goods for resale such as assembly, relabelling or repackaging.