Why learn about operating budgets?
Why do budgets matter? It seems like a ton of work to put together all of the information needed to complete a master budget. We need to know how many units we are going to produce, and all of the costs that go into each of those units. We also have to have all of our payroll information, and overhead costs. Hours and hours of work may go into creating the master budget, even for a small company!
The budget matters for a variety of reasons:
- We can see if the company will make money or lose money at our anticipated level of sales.
- We can analyze our expenses based on expectations. This will help us know when costs are high or where we can save money in our processes or purchases.
- We can hold staff accountable for their departments. This is especially true if they participated in putting the budget together for their own department!
- It creates a living document to help grow the business and become more profitable over time.
It would be tough to run your household without an idea of the interaction between what is coming in for income, and what is going out for expenses right? Let’s think about the business master budget as a big household with a few more moving parts!
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