What Are the Components of an Operating Budget?

by Mary Jane; Updated September 26, 2017
...

An operational budget is a charted budget that outlines all of the money required to make the business operate effectively and successfully. An operating budget includes both the money coming in through sales and investors and the money going out in terms of expenses and product development. An operational budget can often be found in a company’s annual financial report.

Income Statements

An operating budget presents all of the money coming into the business, whether through investors, sales or a combination of both. This is often presented by income statements and sales reports. If the operational budget is for a small business, the income may solely be the income from products and services. The income section may be broken down in terms of products sold so the business owner can see how the products are selling. For example, if the business has 10 products for sale, the income section may show that the business has sold three copies of one product, six of another and two of a third. The money earned from each product is added up as an income lump sum.

Office Expenses

Another component that is part of the operating budget is a list of the items the business needs in order to operate the office or administrate part of the company. This may change month to month, so the office expenses are often classified as flexible or variable expenses. Examples of office expenses can include computers, printers, technological repairs or add-ons, paper, pens, office furniture, business cards and telephone utility bills. Some businesses will also classify customer dining and travel expenses under the administrative expense section of the operational budget.

Product Expenses

In order for a business to operate effectively, the business needs to produce products or services. While some services may be created using limited expenses or costs, such as Web design or writing services, products that need to be manually built or created may require additional production costs, such as tools and supplies. For example, if the business is selling wooden furniture, production expenses would include woodworking tools, different types of wood, screws, paint, stain and paintbrushes.

Additional Funds

The operating budget is constructed using the income of the business and the costs required to keep it running. If the income of the business is more than its operating costs, the operational budget will have additional funds left over. This specific amount may vary each month, depending on the overall income and production expenses. These additional funds can be used for other business expenses, such as marketing or employee salaries. Otherwise, the additional funds can be put away as profit.

About the Author

Based in Toronto, Mary Jane has been writing for online magazines and databases since 2002. Her articles have appeared on the Simon & Schuster website and she received an editor's choice award in 2009. She holds a Master of Arts in psychology of language use from the University of Copenhagen in Denmark.

Photo Credits