How to Write an Operating Budget
An operating budget includes information that directly affects a company's financial success. Sales, inventory, cost of goods sold and operating expenses are typically in this budget process. Companies often prepare the operating budget to determine how much income they will receive from future operations. Accountants usually prepare this budget. They review past business performance and current market conditions to determine what future financial expectations may be for the company. Budgets are subject to change as different conditions occur in the open market.
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Instructions
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1
Multiply the estimated product sales amount by the sales price for each product. This produces the total revenue expected for the upcoming budget period.
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2
Review the inventory costs for products sold by the company. Managerial accounting documents should provide information on the costs for each product sold.
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3
Multiply the estimated product sales amount by the inventory costs for each item. This is the total costs of goods sold for the budget period.
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4
Deduct the estimated cost of goods sold from the estimated sales revenue. The difference represents the estimated gross profit from the operating budget.
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5
Estimate the expenses for the upcoming budget period. Review previous operating expenses and compute an expense percentage by dividing total operating expenses by total sales revenue.
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6
Multiply the operating expense percentage by current estimated sales revenue. Deduct this figure from the current budgeted gross profit. The difference is expected operating profit.
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Review the budget against previous periods to determine if the budget is reasonable. Major differences between the current budget and previous ones can indicate flaws in the preparation method.
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Tips & Warnings
The operating budget is just one piece of a company's master budget. In many cases, companies prepare the operating budget first and then complete the other budget parts.
