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Operating Budget
An Operating Budget is a roadmap designed a year before the annual operations begin. It is developed jointly by the company’s entire operations team.
Have you ever wondered what separates a company that is still in its startup phase from one that takes off toward success and growth? The answer is the Operating Budget.
WHAT DOES AN OPERATING BUDGET ESTABLISH?
This roadmap establishes:
How much will be sold
Which strategies will be used
The cost of those strategies
The profit margins on the products that benefit the company most
With this information, each department, given the proper time and data, budgets the expenses and resources it will need to meet the sales expectations in terms of:
Inventory
Delivery fleet
Warehouses
New branches
New equipment
Once the budget has been agreed upon by the entire leadership team, the next step is to start putting it into action. The Operating Budget is an excellent tool for any executive.
BENEFITS OF AN OPERATING BUDGET
Tracking the Operating Budget month by month and week by week makes you a results-driven leader: one who knows what to expect from each part of the team, understands how much should be spent relative to what will be sold, and, above all, has a guide for the whole team that keeps everyone on the same page and working toward the same goals.
With an Operating Budget, we avoid having a director who plans to grow and sell 1,000, a sales manager who thinks 200 is enough, a purchasing manager who believes they need to buy $800 worth of inventory, and a facilities manager who feels that being ready to install 100 will do.
The Operating Budget is an extremely valuable tool for running a company successfully. However, there is a natural resistance to creating one, since it means extra work on top of day-to-day operations.
Budgets are usually started in October, so they can be refined throughout the rest of the year.
Finally, if you recognize the value of this tool and understand how it will help you and your team achieve the results you’re aiming for, I definitely recommend putting it to use.