What is an operating budget?

An operating budget is fundamentally a plan that outlines projected revenues and expenses for a specific period, typically a fiscal year. This budget is essential for small businesses as it helps in planning and controlling the financial resources of the organization. By detailing expected income and expenses, an operating budget allows businesses to anticipate financial challenges, allocate resources effectively, and set financial targets.

The focus on revenues and expenses distinguishes an operating budget from other financial documents. For instance, while historical records capture past performance, they do not provide forward-looking insights required for financial planning. Similarly, documents that address tax liabilities are concerned with compliance rather than the overall operational aspects of the business’s finances. Lastly, reports comparing actual performance to budgeted figures are useful for assessing past outcomes and variances but do not serve the primary function of planning for the future, which is the key purpose of an operating budget.