Whether a business is non-profit or for profit, an operating budget is indispensable. The business owner uses it to make sure that things are on track, as well as charting growth and addressing any problems that might arise. Operating budgets also have the potential for attracting investment in a company. The important thing is making sure that an operating budget is as accurate as possible.
A benefit of an operating budget is keeping track of the entire business. Operating budgets indicate both money that is spent and money that is projected to come in. By checking the operating budget, a business owner or manager can see if the business is on track or is experiencing problems. By noting any deviation from the operating budget, the manager or owner can examine those issues to determine what changes, if any, might need to be made to either the current budget or future budgets.
Another benefit of an operating budget is being prepared for financial responsibilities. When an operating budget indicates the monthly expenses of a business, a manager or owner has the opportunity to put money aside to cover those expenses. Knowing beforehand what the expenses are, rather than waiting until the last minute, allows a business to flow smoothly. In addition, factoring in such expenses as salaries ensure that both management and labor get paid on a regular basis, assuming that money has been set aside each month to cover those expenses.
Another benefit of having an operating budget comes when it’s time to get investment money. By showing potential investors the operating costs of the business, they can make an informed decision as to whether or not to invest in the business. The more accurate the operating budget is, the less chances there are for financial misunderstandings. Investors know that businesses that operate within their budget are usually stable investments.
Addressing the variables in a business is an important benefit in building an operating budget. While an operating budget contains the constant budgetary requirements of a business or organization, it also sets aside certain amounts for such things as repairs, maintenance and taxes. It is important to make sure that the operating budget maintains a certain flexibility in these areas, since it is difficult to know how much a repair job will cost or what the tax rate is going to be, since tax rates fluctuate with the various interest rates, at times.