How to Create an Operating Budget

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An operating budget is a required component of a business plan used by an entrepreneur prior to opening the business. Once the business is open, the operating budget is analyzed and updated at least once a year to reflect realistic costs and revenues. An operating budget covers every aspect of the business, from income to cash spent and debt incurred. Operating budgets are reviewed by investors and financing companies. An operating budget should be as accurate as possible.

Break down the parts of the business into various components to figure out the assets and liabilities of each. Write up a separate budget for sales, production, operating costs such as utilities and administration salaries, income and cash flow. Separating each aspect of the budget makes it easier to compile a completed final operating budget.

Include short- and long-range projections for each category when building an operating budget for a start-up company. One-time costs such as licenses and equipment should be included in the short-range operating budget, while investments, growth plans and upkeep for the equipment is a part of the long-range budget revenues and expenses.

Report expected income conservatively, based on market research, previous experience and known sources such as signed contracts and confirmed orders.

Get assistance in preparing an operating budget from an accountant or business attorney. Free help is available through SCORE, the Small Business Administration program that utilizes the expertise of retired business executives.

Use a software program intended to walk you through the budget-creation process. While common spreadsheets are widely used for creating operating budgets, new software can help to guide the business owner to make sure that all aspects of the business are covered. Companies such as Jian Software and Alight provide questions and templates that can streamline the entire budget process.

Collect information on a regular basis from department managers to update the operating budget each year. Ask employees to provide details of spending and income each year in addition to requests for the following year.

Tips & Warnings

  • Build the operational budget into an Internet-based platform that can easily be updated in real time so that when it needs to be created each year, all the pertinent information is readily available.
  • Take time to compare actual income and expenditures to the previous operating budget to find out how accurate the projections were and to avoid inaccurate budget projections for the coming year. Inaccurate budgeting can leave the company with a shortfall to cover necessary expenses.

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