Leaders need clear financial visibility to make informed decisions. A well-built operating budget is the tool that keeps organizations aligned and prepared throughout the year.
Bruno J. Navarro
Senior Editorial Strategist, Finance
Workday
Turning business strategy into action requires financial visibility. When leaders know how money moves through the organization, they can invest with purpose and respond quickly to shifts in demand, all while keeping daily operations running smoothly.
Still, many companies struggle to manage cash flow timing. The consequences can be significant: Forbes reports that 82% of business failures are linked to poor cash flow management.
A disciplined operating budget delivers the missing clarity. It’s a practical tool for guiding decisions over the course of the year or reporting period, and serves as a living resource for tracking performance and making smart spending adjustments when conditions change.
Report
Budget-driven financial visibility is paramount: 82% of business failures link directly to poor cash flow management.
An operating budget is a detailed financial plan that outlines a company’s projected income and expenses for a defined period, typically one fiscal year. It acts as a practical blueprint for how the organization expects to generate revenue, manage costs, and sustain day-to-day operations.
The components of an operating budget work together to give leaders clear visibility into financial performance:
A well-structured operating budget anchors the annual planning cycle by linking financial objectives to operational decisions. It connects directly to core financial statements—especially the income statement—by forecasting expected profit or loss based on planned activity.
Beyond cash-based items, operating budgets also incorporate non-cash expenses like depreciation and amortization, offering a more complete picture of expected financial performance. This blend of cash and accrual insights helps leaders manage day-to-day expenses, assess resource needs, and make better-informed decisions throughout the fiscal year.
Understanding an operating budget becomes even more useful when viewed alongside its counterpart: the capital budget. While an operating budget ensures leaders can navigate the financial realities of the current fiscal year, a capital budget shapes the long-term investments that determine how the organization grows. Together, they form the two core planning tools that guide both everyday decisions and long-range strategy.
An operating budget focuses on the short term—again, typically one fiscal year—and tracks the income and expenses that keep the business running day to day.
A capital budget, by contrast, looks ahead to long-term investments like facilities, equipment, or technology.
Each plays a distinct role in financial management, and organizations need both to maintain stability while preparing for change.
Most organizations rely on both operating and capital budgets. The operating budget supports continuous operations, while the capital budget funds the assets that enable them. Aligning the two helps keep short-term spending plans consistent with long-term investment goals, ensuring both budgets work together to support overall financial stability.
An operating budget focuses on the short term—typically one fiscal year—while capital budgets look ahead to long-term investments.
Once you understand how an operating budget fits within the broader planning framework, the next step is building one that reflects both operational needs and financial discipline.
A strong operating budget translates strategy, resource requirements, and expected activity into a plan the entire organization can rely on throughout the fiscal year. The process is sequential, with each step creating the foundation for the next.
Before you can plan forward, it's important to gain a grounded understanding of how the organization actually operated in the past. Start by studying the behavior of revenue and expenses to understand what’s stable, what fluctuates, and what consistently disrupts forecasts. A detailed look back gives you the evidence you need to build assumptions you can trust.
Example: A mid-sized SaaS company pulls last year’s income statement and departmental reports. The finance team sees that customer renewals spike in Q2 and Q4, while cloud-hosting costs run higher than budgeted in months with large product releases. Those patterns become the starting point for this year’s assumptions.
A dependable revenue forecast is the backbone of an operating budget. This step involves translating what you know—past performance, pipeline activity, demand shifts—into what to expect. Revenue forecasting requires balancing optimism with discipline, because every spending decision in the budget depends on getting this number right.
Example: At the same SaaS company, finance partners with sales and customer success to review the subscription pipeline, renewal dates, and planned upsell campaigns. They adjust last year’s revenue upward to account for a new enterprise product tier, while tempering expectations in a region where sales cycles are lengthening.
Once revenue expectations are set, you can model the operating costs required to support the business. This step focuses on understanding cost behavior—which expenses stay steady regardless of activity, which rise and fall with demand, and which have both components. Accurate expense modeling helps prevent budget shortfalls and makes future variances easier to diagnose.
Example: The SaaS classifies office leases, core SaaS tools, and base salaries as fixed. Cloud-hosting fees and payment-processing costs are modeled as variables, based on projected user activity and transaction volume. Support overtime and contractor spend are treated as semi-variable, rising in scenarios where customer growth exceeds the base plan.
Some expenses don’t occur regularly, while others don’t affect cash but do affect profit. If you leave these out, your budget won’t reflect the organization’s true financial performance. Including these expenses ensures leaders see the full picture—not just monthly spending, but the broader cost structure that shapes profitability.
Add planned one-time purchases such as equipment or system upgrades.
Include depreciation and amortization based on accounting schedules.
Capture major events affecting financials, like facility repairs or program launches.
Confirm all items align with financial reporting requirements.
Example: The SaaS company adds a planned customer data-migration project and a one-time security audit to the budget year. The team also updates depreciation schedules for recently purchased servers and capitalized software development, so the operating budget mirrors how these investments will appear on the income statement.
This is where planning becomes operational. With revenue and cost projections in place, you can allocate funding across teams, programs, and priorities. The goal is to align resources with strategic direction, ensuring every part of the organization has what it needs without overcommitting.
Assign budgets to departments based on initiatives and workload.
Evaluate staffing needs, operating capacity, and upcoming commitments.
Use planning tools to model trade-offs and ensure allocations stay aligned.
Adjust distributions to maintain balance between priorities and constraints.
Example: At the SaaS company, leadership decides to shift more budget toward product and customer success to support a push into the enterprise market. Using their planning platform, they test different hiring and marketing scenarios, then finalize allocations that fund key initiatives while holding total operating expenses within the target margin.
A budget only works if the organization agrees to it and uses the finalized version. This last step turns the document into a shared plan by validating assumptions, confirming ownership, and setting expectations for how the budget will be monitored throughout the year.
Example: Once the SaaS company has a consolidated budget, the finance team meets with each department head to walk through assumptions and trade-offs. After leadership signs off, they schedule quarterly review sessions where teams compare budget vs. actuals, explain variances, and agree on midyear adjustments.
When leaders revisit their operating budget regularly and make adjustments based on new information, it becomes a practical tool for operational clarity.
Creating a solid operating budget is only the first step—its impact comes from how consistently it’s used throughout the year. When teams revisit the budget regularly and make adjustments based on new information, the budget becomes a practical tool for operational clarity.
A well-managed budget also strengthens alignment across the company. Department leaders understand how their work affects financial outcomes, executives gain earlier visibility into risks and opportunities, and teams share a common foundation for making informed decisions. This builds accountability and helps create a more predictable operating environment.
Modern financial management systems deepen this value by connecting real-time data across the business and supporting more continuous planning. With a clear plan and the technology to keep it current, organizations can move through the fiscal year with confidence, guided by a realistic operating budget designed to support both day-to-day performance and long-term goals.
51% of CFOs rely on non-financial data, yet only 52% of CIOs have a unified view of financial, operational, and people data. Bridge this gap for smarter reporting by downloading our 10-step guide.
Report
In the past decade HR has undergone a major evoluton from a supportive role to a strategic one. However, as this report finds, HR teams are more conservative on AI than finance and IT. That makes the potential competitive advantage even greater—learn more below.