Projecting Outflows for Expenses

A cash outflow falls under this category if it is cash paid out for operating expenses. Operating expenses are all the expenses you incur while operating your business. Examples of operating expenses include payroll and payroll taxes, utilities, rent, insurance, and repairs and maintenance. A good rule of thumb is that if the cash outflow doesn't fit under any of the other three categories (debt payments, cost of goods sold, or major purchases), it's probably an operating expense.

Predicting cash outflows for operating expenses when preparing a cash flow budget can be quite easy in some instances, and difficult in others. Rent, for example, is one operating expense that should be fairly easy to predict since it is usually the same amount month after month. Other operating expenses, such as payroll and utilities, may not be so easy to predict.

As when you predict cash outflows for the cost of goods sold, the best way to predict operating expense outflows is to base them on your sales forecast. This prediction is based on a simple relationship — in order to achieve a certain level of sales, your business will have to incur a given amount of operating expenses. Using sales information and operating expense information from prior years should allow you to determine this relationship and express your operating expenses as a certain percentage of your sales. Industry information may be available for your type of business if you don't have prior sales and operating expense information to work with. This information may serve as a starting point for predicting your operating expense cash outflows.