Operating budget is a vital part of any manufacturing industry because it serves as blueprint to run your business effectively. Operating budget helps you to plan all operating activities of your business in effective way. Writing a successful operating budget requires proper information about the historical revenue and expenditure categories. In order to design a perfect operating budget, you have to consider expected expenses through budgeted period and expected income. It will help you to plan about important places where you are required to spend your funds for smooth flow of your business operations. Allocation of funds for different expenses depends on the nature of your business. Operating budget can be a valuable tool for your organization so design it effectively. Here is a useful Annual Operating Budget Planning Template created by pcubed.com to share with you,
Tips to Prepare Annual Operating Budget
Regardless of the nature and size of your business, operating budget will help you to increase the profitability of your business. For your help, I will share some tips to prepare annual operating budget:
- Open a spread sheet program and choose 12 columns from the top of the worksheet to reflect 12 months of the year. Write details of revenue and expense items to the left side rows. You can take perfect idea through sample budget template available in MS Excel.
- It is time to estimate total revenue for the upcoming year to allocate funds to different expenditures. Do not forget to assume economic conditions, market trends, revenue streams and growth of your business because these factors has very important role in increasing or decreasing your business profit.
- Prepare a CGS (Cost of Good Sold Statement) to estimate purchase inventory, raw material, manufacturing cost and all other operational and production costs.
- Get the difference of monthly CGS and monthly revenues and you will get a final amount known as gross margin. Gross margin is the amount that you have spent on the marketing, payroll and other administrative costs.
- Take clear estimation about your monthly sales and marketing expenditure such as travel, entertainment, trade shows, brochures, advertisement and anything else that you perform to market your products and services including website, SEO (Search Engine Optimization), copy writing and social networking experience.
- Usually business owners include production personnel and sales commission in CGS so if you have similar practice then do not forget to add it in your annual budget. Consult your accountant to get best advice on it.
- Do not forget to include monthly administrative expenses including rent, utilities, equipment lease, legal, accounting, insurance and other related expenses that are necessary to spend on the business.
- Subtract all expenses from your gross margin before deducting taxes, interest, deprecation and amortization to get a gross figure about available income to deal with business expenses.
- Do not use optimistic approach in business and always underestimate your revenues and overestimate your expenses. It will help you to easily deal with potential shortfall of cash and you can timely arrange funds for your business.
Here is download link for this budget planner template,