What is an operating budget?

An operating budget is fundamentally a financial plan that outlines expected revenues and expenses for a specific period, typically covering a year. This budget serves as a critical tool for management, allowing them to allocate resources effectively, set financial objectives, and provide a framework for measuring the organization's performance against its financial goals.

By preparing an operating budget, a company can anticipate its cash flow needs and ensure that it has the necessary resources to meet its operational demands. This proactive approach enables businesses to adjust their strategies and operations based on projected financial conditions, thereby enhancing their ability to operate efficiently and maintain profitability.

In contrast, while a forecast of future profitability is related to overall financial planning, it does not encapsulate the detailed breakdown of revenues and expenses characteristic of an operating budget. A record of past financial performance relates to historical data, not forward-looking financial planning. Lastly, a plan for capital expenditures focuses on long-term investments in fixed assets rather than the day-to-day financial activities covered by an operating budget.