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Operating Budgets

Many managers fear developing budgets because they have weak math or accounting skills. In reality, budgeting requires planning skills rather than math and accounting skills. You usually have the prior year’s budget as a guide to use, which needs updating for the coming year. The operating budgets include the revenue and expense budgets. You must first determine how much money you have or will have before you can plan how you are going to spend it. A revenue budget is a forecast of total income for the year. The revenue budget adds together projected income from all sources, such as sales for each product and/or location. An expense budget is a forecast of total operating spending for the year. It is common for each functional area/department manager to have an expenditure budget, and they need to track monthly spending to find ways to cut them. Profits come from increasing revenues and/or reducing expenses. One thing to realize is yes, you should control and try to decrease expenses, but the only way to really increase long-term profits is to increase revenues. An important objective is to increase revenues. So focus on innovative opportunity recognition.