Creating an operating budget
With an operating budget, you list out the expected turnover and costs together. This will tell you what it will take to make a profit.
What is an operating budget?
An operating budget shows the expected turnover and costs of your business for a longer period. This is usually for 1 to 3 years. You deduct the costs from the turnover. This is how you calculate if your business can make a profit.
Turnover and costs
Turnover is, for example, the number of product sales multiplied by the selling price. Or the number of work hours multiplied by the hourly rate. Costs are, for example, staff salaries. But also the rent of a business premises and everything that goes with it, from service costs to office supplies.
Why draw up an operating budget?
An operating budget is useful because:
- You look ahead and give yourself insight.
You know what you need to achieve in turnover to cover all costs and make a profit.
- You can adjust it over time if necessary.
Does your turnover turn out to be different from the original budget? Then you can, for example, plan to increase turnover or reduce costs.
- It is often a condition for financing.
For example, if you want to take out a loan from a bank.
Financial plan
An operating budget is part of a financial plan. And a financial plan in turn is part of a business plan. Most entrepreneurs arrange this when they start their business. In addition to the operating budget, a financial plan consists of:
This lists all the investments a business wants to make in the coming years. Think of buying a machine, delivery van, or office building.
This shows how the investments will be paid for. For example, with own money (equity capital) or loans (loan capital).
This lists all the expected income and costs of your business in a certain period. Usually per month.
Tips for your operating budget
- Specify amounts excluding VAT. Please note that on your liquidity budget, the amounts do include VAT.
- Keep in mind that staff costs are usually about 30% higher than gross wages. This is because of pension and insurance costs, for example.
- Watch the KVK video Making a financial plan: operating, liquidity and private budget. Click the settings wheel for English subtitles.
Questions relating to this article?
Please contact the Netherlands Chamber of Commerce, KVK