When it comes to building a financial model for your business, it can seem intimidating, but it really doesn’t have to be. In this video, we take a look at the best way to build a financial model for operating expenses (opex).

In particular we look at how to build a financial forecast with appropriate drivers for:

* Wages – For most businesses, wages are the largest operating expense. In the video we show 3 different ways to model out wages from easiest (and least time consuming) to most advanced.

* Rent – Rent is pretty simple to forecast as its usually a fixed rate based on square footage and a $ per square foot.

* Marketing – There are several ways to forecast marketing but I like % of revenue for simplicity and given the strong correlation. However, with some businesses you might want to break this down into customer acquisition costs and other general marketing expenses.

* Travel – Travel can normally be correlated to revenue too, so I usually use a % of revenue to forecast travel expenses going forward.

* Office expenses – This is likely a smaller expense than the preceding ones and can also be tied to a % of revenue as a driver for future financial projections.

Your business might have other expenses that don’t fall into any of the operating expense categories above. If so, think carefully about what the drivers of that particular cost item are (for example is it correlated to revenue, headcount, or something else).

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