Operating Budget

Operating Budget

HCS577

September 23, 2012

Adam Craft

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Introduction

Organization use budgets to make plan for future business goals and need financing to accomplish goal. The operating budget allows the company to plan its expected revenue and expenses for the budget period. Developing an operating budget is a vital part of financial plan within ever organization. It defines the company's upcoming report of profits and loss for the different divisions and portions of a company as well as the company as whole for the upcoming year. To identify the variances as well as to monitor things this operating budget is normally divided into what is usually quarters. For a health care company these budgets are prepared for the next year. This paper will discuss financial practices and strategic of financial management within a health care organization and which practices are most effective and which practices are least effective in creating and monitoring an operating budget.

Effective financial management practices in creating an operating budget

An operating budget is the first budget that the company to makes for any project. It is based on the previous knowledge of the expenses. An operating budget is very important for any organization to define the sustainability in the future. It is usually prepared prior to the fiscal year. According to Gapenski (2008), an effective operating budget must be created on an annual basis. To make a good operating budget it is necessary to have an income and expense statement on hand. To make the effective operating budget more than one financial statement help. The statement like cash flow a balance sheet makes a good supporting statement. Once the statement is created the management teams observe it closely that if the assumption made is right or need to be changed. Most of the companies create more than one operating budget statement a year. Then the company can focus on expenses along with the revenue. The supporting financial statements help to figure out the future assumptions. The financial management team has to be careful in making assumptions. If the company shows more patients in any given year because of any natural disaster that increase not happen every year so making assumption Company's management team have to be careful.

The creating and monitoring a budget, the use of financial management should not be overstressed. To start off, the budget system should be able to identify of the relevant data involved. The operating budget can be best utilized as a profit and loss statement projection and to prepare the estimates of expenses and future revenues. To make it easier to monitor, according to Finkler (2006), an operating budget should be presented together with the appropriate plans as well as statements which act as supportive documentation.

An operating budget for a business usually will include line items for ongoing expenses that are acquired each month. This will include the salaries and wages of staffs, inventory as well as any expenses associated with health insurance. The production costs depend on the budget as well as any expense necessary to keep the company operating