Operating budget

The purpose of an operating budget is to provide an overview of the company's expected income and expenses for a given period - typically 3, 6 or 12 months ahead.

Most operating budgets are created for a full financial year at a time, but in recent years there has been a trend to create operating budgets for shorter periods in order to be more accurate with budget assumptions and expectations.

What is an operating budget?

In a business, finances are crucial for operations, growth and survival. That's why it's important to have insight and overview of the financial situation at all times.

With the operating budget, management forecasts future income and expenses in order to plan activities. Once the operating budget period is over, management can compare it to the realized figures - income and expenses.

Many operating budgets are created at the start of a new financial period, perhaps for the entire company - or maybe even at departmental level. In recent years, there has been a growing trend to work with rolling budgets (or rolling forecasts). By making budgets rolling, the period is often shorter - perhaps 3 or 6 months - in order to be more accurate in budgeting.

Predicting revenue and expenses in 12 months can be challenging, while predicting revenue and expenses in 3 months can be easier if you see a trend among customers, in the market or in other conditions.

Who needs an operating budget?

Basically, the company itself should use the operating budget to manage its expected income and expenses. This makes the operating budget an excellent tool for the company's owners and/or management - but also for the other employees who have influence over income and expenses.

As well as being an excellent management tool for company management, the operating budget is often requested by external partners - such as banks and other lenders.

The operating budget shows the company's expected income and expenses, helping to show the expectations of the business in general - information that is of interest to a lender.

Example of an operating budget

There are many ways to create an operating budget, and typically more complex businesses will also have more complex operating budgets. We always recommend that you start simple and build out as needed.

An example of an operating budget could look like this:

Revenue (sales)

• Cost of goods sold
  = Gross profit
• Fixed costs
• Depreciation
  = Profit

We always recommend that you use a template as a starting point when creating an operating budget. With a template in Excel, for example, you can get started quickly and it's easy to insert your expectations without spending unnecessary time setting up formulas, layout, etc.

Download free operating budget template

Collectia is one of the largest debt collection companies in the Nordics, which is why we feel particularly committed to helping companies, no matter what stage they are at.

At Collectia, we continuously create quality content and materials that you as a business owner can freely use - including templates.

We have created a free operating budget template in Microsoft Excel. You can download it for free right here, whether you are a Collectia customer or not.