What is an Operating Budget?

An operating budget is a detailed financial projection that estimates a company’s revenue and expenses over a period of time. Companies usually prepare an operating budget at the end of a year to forecast activity in the coming year.

How do I create an operating budget?

Creating an operating budget is a collaborative effort between executives and managers who estimate revenue and expenses, marking all the different ways of a company making money by selling goods or services as revenue. This comprises projected revenue based on a year-over-year forecast, separated into underlying components like unit volume and average price to yield more insights. Other parts of an operating budget are variable costs, fixed costs, non-cash expenses, and non-operating expenses; although other expenses could be included in some industries.

How do I measure operating budget?

To achieve the business goals of an organization, a periodic comparison of actual results to the operating budget can help managers analyze the outcome, adapt to changes, update their actions and strategies, and achieve better performance. An operating budget provides a clear picture of the company’s financial status, ensuring financial responsibility, and optimizing resources.

While it may be a challenge to gather all the needed figures for a detailed operating budget that will efficiently guide the organization, an operating budget is an essential tool for capturing financial clarity and guidance.