How should a simple operating budget be constructed?

• A. List expected revenues, estimate costs by category, set targets, monitor variances monthly, and adjust as needed
• B. Forecast only profits for the next year
• C. Track customer feedback
• D. Hire new staff before budgeting

Answer: (A)

Planning day-to-day finances by outlining expected revenues and expenses, setting targets, and regularly comparing actual results to the budget is what a simple operating budget is all about. This approach provides a clear plan for cash flow and resource use, helping you anticipate how money will come in and go out.

By listing expected revenues and estimating costs by category, you create a structured forecast that shows where money should come from and where it should be spent. Setting targets gives you concrete benchmarks to strive for, making performance easier to measure. Monitoring variances each month highlights where actual results diverge from the plan, so you can diagnose causes and make timely adjustments to stay on track. Adjusting as needed keeps the budget relevant as conditions change, preventing surprises and supporting better daily decisions.

Other ideas don’t fit as well because forecasting profits alone ignores expenses and cash flow, tracking customer feedback isn’t budgeting, and hiring staff before budgeting can commit resources you don’t yet have.