What is an operating budget?

Here they can find out if they are on track to achieving the goals set forth in the operating budget. Evaluating and analyzing actual results with the information from an operating budget helps companies to update their strategies and actions if necessary, be adaptive to fluctuating conditions in a market, and assist them in improving company performance.

There are several different components to an operating budget, including:

• Revenue

This portion of the operating budget lists all the different ways a company generates money through the sale of products and/or services. Projected revenue is often based on year-to-year forecasting. It can also be broken down into smaller elements, like average price, and unit volume.

• Variable costs

These are costs in an operating budget that might change depending on specific factors, like sales volume. Common examples of variable costs include things like labor, freight, sales commissions, and raw materials.

• Non-cash expenses

Non-cash expenses can come in many forms. Some of the most common non-cash expenses in an operating budget include unrealized financial gains or unrealized losses, depreciation, stock-based compensation for employees, amortization, and deferred tax incomes.

• Non-operating expenses

These costs in an operating budget refer to expenses a company incurs that are not directly related to its primary business activities. Some of the most common non-operating expenses are:

• Financial losses on the disposition of assets

• Interest payments are to be made

• Costs associated with currency exchanges