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.