Question

What is the best Forcasting model for General & Administrative expenses?

How can it be used to reduce time spent on forecasting and increase forecast accuracy?

Please explain.

Answer 1

The best forecasting model is to use a combination of percentage of sales revenue, a growth rate over last year and a fixed dollar value.

The General and Administrative expenses are broken down into various elements like administrative salaries, insurance, rent , taxes, travelling , depreciation etc.

Some of the line items like rent and insurance may be a fixed dollar value.

Some line items like travelling, advertisement etc can be forecast based on percentage of sales revenue.

Some items like administrative expenses can be forecast based on agrowth over last year due to increase in salaries.

If the forecast is broken down to line items and individual item forecast is made, it will increase accuracy of forecast and reduce the time spent on forecast