Business Planning

How to setup your service business forecast

Operating a service firm has it’s own unique challenges for cash flow planning.  Sure you get out of dealing with inventory logistics and the cost accounting quagmire, but you may instead replace that with extreme seasonality or “feast to famine,” work flows. For example, in addition to the business advisory practice, our firm McDonald Jacobs, has a…

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How to use DPO

By payables, I mean accrued expenses.  This article will be the mirror image of my previous article, How to forecast receivables.  Rather than starting with some motivation as to why you might want to forecast payables, I’ll assume you already have a reason.  If not, check out my article, Going from EBITDA to Cash Flow in your…

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How to use DSO to forecast receivables

Perhaps, we should start with why I forecast receivables.  This post follows from my recent posting, Going from EBITDA to Cash Flow in your forecast.  I advocate for growth minded businesses to maintain a rolling 12 month cash flow forecast.  However rather than trying to forecast cash collections and disbursements directly the model I use, first forecasts EBITDA…

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How to convert EBITDA to cash flow in your forecast

If your business is in growth mode then I highly recommend maintaining a 12 month cash flow forecast.  I have written multiple articles over the last few months on the forecasting process.  One of my previous articles discussed setting up your forecast to calculate Earnings Before Interest Depreciation and Amortization (EBITDA), Why I Forecast EBITDA.…

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How to budget for marketing costs in your business plan

Lately I’ve really enjoyed reading about and studying the marketing profession.  Everything from growth hackers to lean startup methods, I find fascinating.  Perhaps it’s how much of the newer ideas and thought leadership on marketing are trying to anchor themselves to data and the scientific method.  It feels much more like my own profession of accounting.  The idea…

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How to determine research expenses in your forecast

By forecasting, I don’t mean merely trying to predict what the spending will be.  I’m advocating for active planning for the amount of research costs that you determine will be a good investment.  Accounting standards train us to think of research expenditures as a current period expense, rather than costs that builds an asset.  The literature…

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Forecasting your sales department expenses

I kind of think that the cost of your sales department should have some relationship to your sales (revenue) forecast.  Don’t you? The kind of costs I usually see in a sales department are the sales representatives, sales managers, trade shows, promotional items, travel, meals and entertainment.  Sales commissions can be directly tied to the…

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Forecasting General and Administrative costs

Is forecasting the general and administrative (G&A) costs for your business simple?  Well, yes.  It could be.  No need to make it more complicated than it has to be.  If you follow the advice in my previous article, What is an overhead cost in your forecast, G&A will be what remains of your indirect overhead,…

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How to define overhead costs in your forecast

In general, an overhead cost is any item that isn’t directly related to the specific product or service you sold.  This is sometimes referred to as an indirect rather than direct cost in your business.  In my previous article, Forecasting the direct costs of your service business, I share examples of what would be a…

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How to forecast direct costs for your service business

Direct cost for your service business is often called your cost of sales.  This article is a follow up to my last posting, How to forecast sales.  I essentially see two opposing views on how to approach this line item in your EBITDA forecast.  One view is that direct costs can be forecast based on…

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