Creating a Reliable Forecast for your Payroll Costs
Updated: Jun 20, 2021
It is important to create a solid forecast for your payroll costs to help with planning the future of the business and your hiring needs. Your business has the potential for growth in the future and you want to make sure that your costs and staffing needs will be covered.
Depending on your goals, these statements will cover different periods of time and this will help you forecast your payroll costs and hiring needs.
If you are creating a financial forecast for your planning purposes, you should create pro forma statements covering six months to one year in the future. HR Simplistic can help you create a reliable payroll forecast based on your financial forecast.
Financial forecasting vs. budgeting
When you create a budget for your business, you plan to set aside money for certain costs, taking into consideration your income and expenses.
Think of your payroll cost forecasting as a prediction, and budgeting as a plan. When you make a payroll cost forecast, you see what direction your business is headed in, based on past performance and other factors, and use that to anticipate the future.
The process of making your forecast for Payroll costs
Decide how you will make projections. Besides past records, there is other data you can draw on to make your projections more accurate. If you are not looking into the past to see how your business has grown, you are not really forecasting—you are just guessing. Once your books and financial statements are up to date, you will have everything you need to start planning your payroll costs for the future.
When you use your financial history to plot the future, it is historical forecasting. You are looking at your last few annual Income Statements, Cash Flow Statements, and Balance Sheets to see how fast you have grown in the past. From there, you can make an estimate about how fast your business will grow in the future.
When you do research about larger market trends, you are using research-based forecasting. You may look at how your industry has performed over the past ten years, including investigate new technologies and consumer trends, or try to measure the progress of your competitors.