How to Create an Operating Budget for Your Small Business

If you’re a new business owner, there are many new scenarios that you’ll have to navigate, including how to approach budgeting for small businesses. Anything related to your company’s financial health can be an intimidating topic, especially if you’re new to running your own business.

So how are you supposed to navigate finding the right financial information, understand business terminology, and compile the data in the correct order?

This blog article can help you!

I’ve included a few of the highlights for you to get the gist of the article:

What Is an Operating Budget?

An operating budget is a predicted (forecasted) financial statement of all revenue and expenses during a fixed timeframe such as a quarter or a year. This operating budget is typically divided into categories of revenue for each product that the business sells. In some cases, the operating budget can also be broken down based on the types of expenditures the company makes regarding each product. Most companies take this one step further and break their operating budgets into both fixed and variable costs.

Why Is an Operating Budget Important for Your Small Business?

An operating budget is an integral facet of a small business budget as it outlines essential information on your current financial state and long-term financial goals. Your budget plays an integral role in helping you make financial-related decisions for your business, so it should be one of the first things you establish as a new small business owner.

How to Create an Operating Budget for Your Small Business?

Step 1: Establish a Sales Budget.?Before you establish your operating budget, you must first determine your sales budget. This is a monthly projection of the services and products you will sell and the amount of revenue you’ll earn. If you can project your sales every month, you’ll be able to better account for any seasonal income changes to adjust your spending.

Step 2: Budget Your Costs.?The next step is to budget your costs or expenses directly related to selling your services or products.

Step 3: Budget Your Operating Expenses.?Ensure you have previous financial data, such as last year’s profit and loss report. Next, list out your expense categories using last year’s report as a guide. Then, you’ll want to identify your fixed and variable expenses for each category. Remember that fixed expenses, such as rent, insurance, and software subscriptions, don’t change over the month or year. Variable expenses, on the other hand, change monthly and are often seasonal. Examples include supplies, marketing costs, wages, one-off software purchases, etc.

Pretty valuable stuff, I’m sure you’ll agree!

If you're new to business planning and don't have an operating budget in place, why not check out the whole article?here. And if you still have any questions, shoot me an email ([email protected]); I would be happy to talk.