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Create an operating budget in seven easy steps

by , 29 August 2014
If your company constantly makes a loss because of out-of-control operating costs, it's time to create an operating budget.

This will help you manage your expenses and prioritise them so your company doesn't end up overspending on pointless things.

But when your expenses are this out of control, how do you start creating this budget?

Well it's actually easier than you think and you can do it in just seven steps. Read on to find out what those steps are...

 

Use these seven steps to create an operating budget

 
Step #1: Start with the previous year's figures 
Ask your accountant for an income statement from the previous year. Insert the amounts into your Excel spreadsheet that matches the income statement. 
 
Step #2: Forecast sales 
It's important it forecast your sales by using the previous year's figures. If you're starting a new business, use industry insiders to give you a framework for the sales you'll achieve.
 
Step #3: Forecast your cost-of-sales
Forecast the cost of sales by using the previous year's figures. This forecast depends on your industry. 
 
Step #4: Forecast your variable costs
Ensure you budget enough for labour and material. Calculate if you'll need to hire more workers this year or if you project you'll need more stock.
 
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Step #5: Forecast fixed costs 
Budget for unexpected costs like launching new products or inflation. Fixed costs are regular costs and don't vary with output. Use your general and administrative expense budget for these figures. 
 
Step #6: Determine profit/loss for the forecasted 12 months 
Determine profit/loss for the next 12 months by deducting the cost of sales, variable costs and fixed costs from your total projected sales.
 
Step #7: Break your annual forecasted sales and costs goal into 12 monthly benchmarks for your budget
Now you can divide your forecasted 12-month operating budget into 12 separate months. To do this, divide the total in the 'Forecast 12 month' column by 12 for each month.  
 
Follow these seven steps, and you'll have a foolproof operating budget in no time.
 


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