Direct Expenses on Business Plan Pro Forma
Q: What all makes up the Direct Expenses on the financial statements pro forma?
As a startup entrepreneur, you want to make sure your expenses are properly categorized on your financial statements pro forma between direct expenses and indirect expenses as they have a different impact on how your pro forma looks in terms of gross margin and how you and your investors will view the scalability of your business plan.
We've made this expense allocation task very easy for entrepreneurs with no accounting or finance expertise. Simply follow our step-by-step instructions that help you fill in your assumptions, and our app will apply the proper accounting rules for you to categorize your expense assumptions properly and build your pro forma for you automatically.
In terms of specifically what is included in Direct Expenses, if you click on the plus sign on the Income Statement report, the Direct Expenses detail opens up and you can see the five different expenses that comprise Direct Expenses. (If you click on Month or Quarter in the upper left top part of the report page, you can see the build up of the expenses over the life of your startup business plan.)
Four of these Direct Expenses are calculated based on your offering assumptions and one is a custom category to fit your specific business model. The individual Direct Expenses of COGS, Direct Labor, Revenue Share, and Shipping and Postage expenses on the Income Statement are the sums of all of the offering cost assumptions multiplied by the total number of offerings sold for each time period.
Your offering cost assumptions are entered under the Offerings category on the main menu for each offering as shown here:
You can also see these expenses for each distinct offering on the Sales report as well.
In the Income Statement example report above, there is also a Direct Expense called “Hosting Expenses”, which in this example was entered under Other Direct Expenses in the assumptions inputs and represents any other category of direct expense that does not apply to individual offerings, but to all offerings. This is a useful input for any business model and will appear on the Income Statement under whatever label you enter. In this example we are using it for hosting expenses for a SaaS app that are allocated across all of the SaaS offerings, from a free trial to basic version to premium versions: