Budgeting For Expenses

I have always found that one of the key parts of getting a grip on the firm's finances is to have a good idea where the money goes. You might not need all the line items in the budget template here, we didn't; but it is helpful to start with all the possibilities and narrow things down from there.

The first time we developed a budget, we broke down all our expenses from the previous year into these accounts. Download the table here.

Every time we budgeted we found line items from last year's actual results that seemed to be getting larger and larger contrary to how much we wanted to spend. It is helpful to shine the spotlight on issues like these to find out what is really going on. At the very least you can look for other ways to offset the increases.

The expenses fall into four categories - Reimbursable Expenses, Direct Expenses, Indirect Expenses, and Marketing Expenses. Technically Marketing is part of Indirect, but we wanted to break out the total for special attention. 

Reimbursable Expenses are amounts spent that will be reimbursed by clients. It is very hard to be accurate about reimbursables, and you might choose to ignore them for the purposes of your annual budget.

Direct Expenses are amounts that you spend in designing projects. This is mostly the part of salaries that pays for the design time. Occasionally there is some other expense, like printing that you include as part of your fee. If that is customary for you, add a line item or two for those items.

Indirect Expenses are amounts that you spend to run the firm. These are the majority of the account line items. Even though you need to spend these amounts to provide design services, you don't do any of these things specifically for a project. If you do, then they are Direct Expenses.

Marketing Expenses are amounts that you spend to obtain design work, all your business development costs go here. As I mentioned above, these are technically Indirect Expenses.

One of the chief benefits of going through the budgeting process is to get control of where the money goes. It is hard have profits if you are always being surprised by where you spent the profit.