Recipe for Operating Budgets

Business Budget

Operating Budget

We are in business to make money so it’s quite practical for us to plan a budget. A budget is a business plan and strategy that is put t into practice .It helps to make a plan in financial terms and lends them realistic approach so that they can be transformed into business endeavors.

The operating budget should be based on the way a business operates. The incoming and out going account of cash should be recorded for actual operations. This acts as a tool to manage your business. This detailed budget will help you compare the actual results and analyze the quantity and price of things.

•    Budgeting Cost Of Sales:

At first you have to prepare a recipe of the product by studying in detail what it takes to make the product in terms of materials, supplies, overhead and labor. After considering the things you can calculate like the price and quality of the product you can asses the exact cost of each product. If you are concerned about the all in cost then you have to study the over head expenses such as administrative and management costs. You can determine how much product you can produce monthly by

•    Budgeting Revenues:

The best way to budget revenue is to take a budgeted cost of sales and add a profit margin. The unit cost of each product plus the expected profit margin will give you a budgeted sale price. But while planning the budgeted cost you should consider the competitor’s price. And it may affect the price pfd your product in the competitive market. The main aim of the budget is to quantify these aspects and incorporate them into budgeted selling prices and budgeted revenue.

•    Services:

In the services department the main aim is the time and they are also the building blocks .Billable rates vary as they depend on the individuals experience and qualification. The billable hours of a person in customer service will be different from those of a person who does administrative work.

•    Jobs Or Projects:

Based on your line of business, budgeting will probably cover both the aspects of product and service revenue budgeting. The work may involve direct, an indirect job. The terms and conditions of the work will determine how the work is quoted. If you are working on different jobs at a time then you can use your timeline for each job, and then allocate the total revenues of all the total cost for all the jobs over the applicable period in order to come up with a monthly budget.

•    Expense:

Expenses can be broken down into quantity, price and rates. The type of expense your business incurs depends on the type of work you do. The trick is to maintain a budget by breaking down the expenses into their component parts. Sales commission can be paid to the employers according to the budgeted sale. Rent of property and equipment can be down according to the monthly lease or rental amount.