Operating Budget Sample Template

Creating a Basic Operating Budget Sample

An operating budget is a crucial part of a business. How could it not? It overviews the costs of production, the product’s value, the margin of profit, and revenue, allowing a business owner not just to create goals but also monitor their business as well. And here, we will tell you how to create a basic operating budget sample.

Creating a Basic Operating Budget Sample

1.  Identify Monthly Expenses

This includes rent, administrative, storage, transportation, and marketing costs. Basically, it is all the money spent in order to keep the business in operation. Write them down, add up and find the total expenses.

2.  Identify Monthly Production

The next is production. Calculate how many units your business is producing and sold each month. These numbers will identify the turnover of the inventory.

3.  Identify the Value of the Goods/Service

Next, divide the total expenses by production. The number you get is the cost per unit measurement. In other words, this is the real value of the goods or services that the business produced.

4.  Determine Revenue

How many units of your products are sold? Calculate the amount of money made from these product sales before expenses. The number you get is the gross income per unit.

5.  Calculate Profit Margin

Find out the profit margin per unit by subtracting the unit’s cost from the unit’s income. If the number turns out negative, you need to either increase the costs or reduce expenses. If it turns out positive, use it to predict future profits.

Bottom-Up or Top-Down?

Should you create your budget from bottom-up? Or should it be done top-down? The answer is: either way is fine. Budgeting is a circular process. As such, you can create it using a bottom-up or a top-down approach. Do keep in mind that both approaches involve ‘what if’ scenarios, guesstimate, and expectations.

If you start from the bottom, start with the expenses then determine the total revenue needed to cover them. If you start from the top, start with revenue then calculate the total expenses that you can afford. Again, ‘what if’ scenarios, guesstimate, and expectations are involved. As long as you try to be as realistic as possible, this shouldn’t be a problem. 

That is how to create a basic operating budget sample. Keep in mind that you can create your budget from bottom-up or top-down. However you create the budget, try to be clear, concise, detailed, and realistic. If a budget is clear, concise, detailed, and realistic, it will help you tremendously in managing your business. That’s all. We hope this helps.