Expenses can also be broken down into components such as quantities, prices, and rates. Some expenses are basically incurred as a function of usage, for example materials and supplies. Other expenses are correlated with time periods, such as rent and insurance. The types of expenses your business incurs will depend on your line of business, and the following are just some general examples of how you may be able to budget, by breaking down the expenses into their component parts.
Employee compensation can be budgeted based on the hourly wages or monthly or annual salary contracted with each person. You will need to budget for employer payroll taxes, which can be calculated using the applicable rates for Social Security, Medicare and unemployment taxes. You will also need to provide for any benefit plans you have agreed upon with your employees, such as health insurance, pension plans and others. If you have actual data on the cost of these plans, all the better. If not, you may want to budget based on a payroll burden, which is a percentage of employee base compensation.
You may have other employee-related expenses such as bonuses and awards, that are tied to the completion of objectives or goals. It may be possible to correlate these expenses with a related item in the budget, such as sales.
If you plan to pay sales commissions to either your own employees or outside salespersons, the budgeted commissions expense will be a function of budgeted sales. If you use an advertising agency, you should budget based on the contractual terms. Advertising in telephone guides or on-line services can be budgeted based on their quoted rates, according to the type of ad you want to place.
Rent of property or equipment can be budgeted according to the monthly lease or rental amount. Insurance is generally prepaid, and you can do some accounting to spread the quoted insurance premium month-by-month over the policy period.