The expense planning tool allows you to model the activities and expenses associated with the development and operation of the business. This modeling allows you to evaluate the potential profitability and the operating cash flow of the whole business over time, and which expenses or expense categories have the greatest impact on profit. The cashflow analysis will also help you evaluate how much investment is required before the business becomes self-funding and how much profit can be returned on that investment within the forecast horizon.
Costs or expenses associated with a single unit of production or sales transaction (Cost of Sales) should be modeled in the Unit Economics Tool. They are included within the Expense Planning Tool for reference (read only) because they are an key driver of the overall costs or expenses within the P&L. While the Unit Economics Tool models and evaluates the costs and gross margin on a single sale or production unit basis, within the Expense Planning Tool the Cost of Sales are calculated and totaled in the P&L based on the forecast transaction and production unit volumes.
Operating Expenses are typically driven by activities and the resources required to execute them, so this tool also includes aspects of Implementation Planning.
The Expanse Planning Tool currently combines several key aspects of financial and risk analysis for your strategy hypothesis:
Cash Flow & Operating Profit - Operating and Capital Expenses are the expenses associated with developing and operating your business and determine overall cashflow and profitability of the business. Often, they represent minimum fixed costs that may not result in operating profit until the scale of the revenue is large enough to exceed the fixed expenses and the variable expenses scale with the revenue.
Time to Market (TTM) - The operating expense models can also include starting dependency or conditional triggers and durations, which are most relevant for pre-production activities and associated expenses and can be used to estimate the time to market or commercial launch and the chain of dependent activities that impact it.
Other Risks & Analysis - Pre-defined and custom tags associated with expense models can also be used for other aspects of analysis that can expose potential risks, such as how your expenses are allocated to different types of dependencies such as external suppliers vs. internally and even internal organizational dependency risks.
