How to Forecast Expenses and Revenue in LivePlan

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Image of a magnifying glass over a blue and white graphic abstract background to symbolize the thought process behind how to forecast expenses and revenue in LivePlan

Forecasting revenue and expenses is the start of your business roadmap. One that helps you set sales targets, reduce spending, and uncover strategies to improve profitability. 

This article covers creating both forecasts in four simple steps using LivePlan.  

If you’re not a current LivePlan subscriber—you’ll still come away with critical insight into building useful revenue and expense forecasts.

Key Takeaways

  • Review your business model, past financial statements, and industry benchmarks before forecasting.
  • Keep your revenue streams simple.
  • Start with fixed expenses.
  • Tie variable expenses to your revenue.
  • Go with your best estimates.

3 things to consider before forecasting

To make forecasting quick and easy, do these three things before diving into the numbers.

Revisit your business model

Revenue and expenses are tied to customer demand. You’re predicting how well you’ll be able to sell to your customers and how that will impact money flowing in and out of your business.

Hopefully, you’ve done the market research necessary to understand your target market. 

Because you need to understand:

  • How and where your customers like to make purchases
  • How much they’re willing to spend
  • How they like to pay
  • If they’re willing to make repeat or complementary purchases, etc.

Look at your business model. 

  • Does it support the needs of your customers? 
  • Are your core business drivers (the things that you sell) what your customers want? 
  • Are there missing revenue streams that would lead to greater sales?

Tip: Make this review process faster with the LivePlan Pitch. It guides you in outlining your business model as bulleted lists or single sentences. 

Revenue = sales buckets

As you answer these questions—start creating strategic sales “buckets.” These may be single units, recurring revenue, additional fees, asset sales, etc. 

Your goal is not to create an overly detailed and complex list of every potential revenue source. 

Your goal is to establish “buckets” that minimize how much you’re forecasting. You want revenue streams that are easy to track and analyze. That way you’ll know how well you are meeting strategic sales targets. 

Tip: If you’re unsure which revenue streams make sense for your business—try the Suggested Revenue Streams feature to generate a list of viable options.

Pull up past financial statements

Successful forecasting is just as much about looking to the past as it is about considering the future. 

If you’re an up-and-running business—pull out your past financial statements. If you have a current budget, even better! It will come in very handy as you categorize expenses. 

Your past financial performance then becomes your starting point. 

  • It outlines what your business has done previously.
  • Helps set realistic expectations. 
  • Makes it easier to identify changes that lead to growth.

Tip: Using QuickBooks or Xero? Skip manual data entry and import your data directly into LivePlan. Plus, with the Live Forecast feature your forecasts will update with the push of a button.   

Review industry benchmarks

If you’re just starting—you likely have no financial data to use. 

That doesn’t mean you’re stuck guessing. Just use the financial performance of similar businesses. You can start by reviewing sources such as Reuters and the US Census Bureau. 

And if you’re a LivePlan user, you don’t have to hunt for this information. You have access to industry benchmarks in app—making comparisons to your forecast and accounting data quick and easy. 

Tip: Revisit industry benchmarks regularly. You’ll better understand how your business compares to the competition and what market shifts or trends could impact your business.

How to forecast revenue and expenses in LivePlan

That bit of upfront work, which can all be done in LivePlan, is about to pay off. 

You’re ready to create a revenue and expense forecast—quickly and efficiently. 

1. Name your revenue streams

Remember those “sales buckets”? Let’s add them in. But don’t overcomplicate it.

Start with the bucket that contains your main product/service. Name your revenue stream and walk through the steps outlined below and in LivePlan. Then go onto the next bucket you identified.

You’ll become more familiar with the process—making forecasting the rest much easier.  

Tip: If you haven’t solidified your revenue streams you can always:

  1. Look back at your previous financial statements.
  2. Use LivePlan Assistant to generate possible revenue streams.

2. Choose the type of revenue

The type of revenue you bring in will impact how you forecast.

There are four common options:

  • Unit sales: Sales of products as individual units or set quantities.
  • Billable hours: Services priced on an hourly basis.
  • Recurring revenue: Charges that occur on an ongoing basis (typically monthly, quarterly, or annually). 
  • Revenue only: Open-ended revenue expressed as a raw number, and typically associated with one-off or uncommon transactions.

What you choose depends on your business model. 

For example, if you’re selling a subscription, you’ll opt for recurring revenue to track ongoing sales. If you’re selling individual products in-store or online—unit sales are the right choice.

When working in LivePlan, you’ll select from those four revenue options. 

The app will then walk you through adding:

  • When this revenue starts.
  • How much you expect to sell in each period.
  • What your price for each product/service is.
  • Your expected churn rate (specific to recurring revenue).

3. Create initial estimates

It’s easy to get hung up on this step. 

Even if you are not a numbers person, you can do this correctly by going with your best estimates.

This is where industry benchmarks and previous financial statements come in handy. They are your baseline. You just make adjustments from there.

And LivePlan makes this simple. You can:

  • Run with a constant amount for the entire year. 
  • Vary amounts for each month and fine-tune your projections.

If you’re unsure which method to use, look ahead. Where do you want sales to be in 3 months, 6 months, 1 year? 

Then answer the following:

  • What increase in sales/customers do I need to reach this goal?
  • Is the market large enough for me to reach it?
  • What percent of the market do I think I can reasonably pick up?
  • Are there seasonal factors that will affect sales?
  • Will my pricing impact my ability to sell?

Those are just a few questions to consider. Answering them while creating your forecast will help you fine-tune projections month-to-month.

Tip: With LivePlan, you can enter each monthly total, use an annual percentage change, or drag and drop each month with the performance graph.    

4. Now for expenses

When adding expenses, start with your current budget (if you have one). If you’re unsure of what your expenses are—use LivePlan Assistant to generate recommendations.

Once you have your list of expenses, adding them to LivePlan is very straightforward. 

  1. Create a name.
  2. Select if it’s:
    • A dollar amount ($)
    • % of overall revenue
    • % of specific revenue streams
  3. Determine if the cost is constant, varies over time, or is a one-time expense.
  4. Add how much it costs.
  5. Categorize it as rent/lease, marketing, or other expenses.

Tips when entering expenses

Your expense forecast should help you set spending limits. We recommend the following to make this possible. 

  • Start with fixed expenses: 

These are often the largest and most essential expenses (like rent). They’re also the easiest for you to forecast confidently.  

  • Add variable expenses as % of revenue: 

To get the most value from an expense forecast, you should tie variable expenses to revenue whenever possible. 

This allows you to set limits that are reasonable, even when your sales fluctuate. And makes adjustments much simpler. 

  • Address Direct Costs and Personnel separately: You are currently forecasting operational expenses—what it takes to run your business. You should forecast direct costs (costs directly tied to the production of goods/services) and personnel separately. 

LivePlan already separates these expenses for you to help you easily calculate additional targets like your margins and headcount. 

Need better business insights?

Remember, these are estimates. Your best guesses based on research, experience, and goals. They may end up being wrong, and that’s ok. 

If they’re helping guide your decisions and getting you more familiar with your business—then you’re forecasting correctly. And over time, you will get better at predicting performance. 

It just takes practice. Plus, having a tool that makes creating and reviewing your forecast easier doesn’t hurt either.

LivePlan guides you through adding assets, dividends, taxes, financing, and collection/payment terms—alongside your revenue and expenses. Providing you with a complete picture of your projected cash and profitability.
Sign up today and easily build a useful and complete forecast. No accounting experience required.

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Lauren McHolm
Lauren McHolm
Lauren is passionate about making financial management easy and intuitive for small businesses. As a former business manager with an MBA focused in entrepreneurship, she currently manages customer engagement for LivePlan. Lauren lives in Eugene, OR and strives to fill as much free time as possible with family outdoor adventures.
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