An operational budget is a detailed projection of all estimated income and expenses based on forecasted sales revenue during a given period (usually one year).
Owners generally use an operational budget to plan one year of revenue and expenses for their businesses. There are specific steps in preparing an operational budget.
* Prepare a sales budget. A sales budget is a sub-section of an operational budget and deals exclusively with a company's revenue-generating activities. For example, a service company's sales budget will indicate the number of projected sales, the projected price and the projected cash collections from those sales.
* Prepare a cost budget. A cost budget is a projection of all expenses the business will incur during the forthcoming period. Generally a cost budget is split into two sections: the cost of producing revenue and fixed costs. For manufacturing companies, the cost of producing revenues is the cost of goods sold. For service companies, the cost of producing revenues is the cost of sales.
* Prepare the operational budget. Start with the projected revenue from the sales budget. Subtract the cost of producing revenue from the cost budget. This sum equals the gross profit. Next, subtract fixed costs. Then, subtract financial costs such as interest and depreciation. The final sum is projected income.
You may admit that activity based budgeting (ABB) is a reliable solution for preparing an operational budget which EXPERFORM can provide.