What Is An Operating Budget, And Why Do I Need One?

One of the first questions I ask a potential client is, “Do you have a budget”? The most common answer I hear is, “I know how much money I spend”. This usually goes along with, “I know how much money I make”. This is all without actually keeping a set of financials.

An operating budget is a list of your income statement accounts month by month with the projected value. It mimic’s an income statement – for future months. An operating budget should be realistic, should account for forecasted changes. It should also show your gross profit and net income for each month with a yearly total.

There are several reasons why we recommend creating an operating budget:

• Seeing it in writing is reality.

• A written budget will allow you to see what the end of your month, quarter and year are projected to look like.

• It’s easier to plan for the slow season or for growth when it’s written down.

• Control costs - Keep your expenses in line.

• We all want to succeed as business owners. If we write down and evaluate the budget after it’s prepared, it gives us time to make changes.