Something that both large, medium and small companies should take into account is the importance of having a good financial strategy. And this is because the global economic situation is affected by the debts and financial declines of each country. Therefore, it is important that we know the steps in the preparation or elaboration of an operational budget, to have a correct financial balance.
But before getting into the subject, let’s explain a little the important terms, to fully understand how to prepare an operational budget.
What is budget?
When we talk about the budget, we refer to the monetary fund in our possession, with which we can make some expenses. Of course, these are decisions that are made, according to the amount of income we have, which must be balanced, to do not waste the budget obtained.
Budget types, cash and pro forma
These two types of budgets play an important role in business, which is why it is good to use form controls to create budget sheets. Using these methods, we can carry a correct management of operational budgets in the company, helping it to progress successfully.
Both the operational cash budget and the pro forma budget are the most important of a company, let’s see why.
- Operating budget in cash: This allows to have a future concept of the economic position of the company that is expected to have.
- Pro forma operational budget: This helps the company determine the amount of assets and liabilities that will be obtained on specific dates in the future.
The correct management of both operational budgets is important, since, both go hand in hand, to determine the conclusion of one or the other.
Although of course, the pro forma operational budget is ahead of the cash budget, since the cash budget is just a compilation. What do we mean, good that the cash budget is used to keep track of income and expenses company futures.
Therefore, it is essential that each company maintains a forecast of outputs and inputs, to be able to program the pro forma budget.
Steps to develop an operational budget
The operational budget consists of formulating a detailed document of the activities carried out in a company. In this document, a record of expenses incurred for an extended period of time, and it is determined whether any modification is required. These changes have to do mainly with the production, sale, acquisitions, payment of workers, among other activities, which benefit the company.
The budget for sales and revenueIt is the control that is carried out over the activities that generate capital for the company. An example to manage an operational budget for the income produced by the sales of a company, would be the following:
- An automotive company exposes the amount of sales to the public, which they have planned.
- At the same time, it announces the available price for each product.
- It also exposes the total receivable for the sale of all products.
Taking these aspects into account, the company will be able to obtain a average annual sales, and what amount of dollars you will be able to receive.
The sales and cost budget is the deduction of the expenses that the company will generate in the coming periods. Of course, this budget can be divided into two parts, such as the costs when generating the income and the consolidated cost.
Steps to take to consolidate the operational budget
To prepare an operational budget, you can use the financial function of Excel, which will will facilitate calculations, by following these steps.
- It first analyzes the revenue planned by the sales budget.
- Next, you will have to subtract the cost of producing income, which comes from the cost budget.
- After that, the consolidated cost must be subtracted.
- The financial cost, such as depreciation and interest, is also subtracted from them.
- Finally, the final result of the operational budget will show you how much will the company’s income be.
When making this financial balance, any company, whether large, medium or small, will be able to visualize any decline or threat, allowing you to make future forecasts.