Define the operating-profit question and the cash boundary
Use the profitability pillar to name the profit layer. This guide then organises twelve monthly operating rows. It excludes opening cash, dated receipts and dated payments; use the business cash-flow review for liquidity timing.
Records and assumptions to gather
- Twelve comparable months, one neutral currency unit and one indirect-tax treatment. (not complete)
- Volume, unit price and other revenue on a consistent recognition boundary. (not complete)
- Unit variable cost, other variable cost, fixed cost and one-off cost kept separate. (not complete)
- Seasonality supported by records or labelled as a scenario. (not complete)
- One annual operating-profit target used only to expose the action gap. (not complete)
Gather twelve months of comparable drivers and costs
| Driver | Unit | Preferred evidence | Boundary check |
|---|---|---|---|
| Unit volume | units/month | Sales or delivery record; otherwise labelled scenario | Use the same completed-unit definition |
| Unit price and other revenue | CU/unit and CU/month | Invoice or sales record | State indirect-tax and recognition treatment |
| Unit and other variable cost | CU/unit and CU/month | Supplier, fulfilment and delivery records | Keep the cost-behaviour boundary consistent |
| Fixed and one-off cost | CU/month | Contract, payroll or expense record | Do not smooth a one-off item invisibly |
| Seasonality and scenario changes | ratio or decimal | Observed comparable history or labelled assumption | Do not call a scenario likely |
Build and reconcile the base operating budget
- Enter twelve monthly rows on one revenue, cost, period and indirect-tax basis.
- Reconcile monthly revenue and each cost class to its named record or assumption.
- Run the base case and verify monthly totals sum to the annual result.
- Clone the base into upside and downside cases.
- Change only disclosed drivers; retain every unchanged assumption.
- Compare annual operating profit, first cumulative non-negative month and action gap.
- Send working capital and dated cash questions to their separate workflows.
Change one evidenced driver for upside and downside cases
Engine-derived twelve-month fixture
The current public engine fixture uses neutral CU, excludes dated cash and labels every figure as a scenario. Rounded display values below derive from the registered engine.
| Month | Revenue (CU) | Contribution (CU) | Operating profit (CU) | Cumulative profit (CU) |
|---|---|---|---|---|
| 1 | 59,925 | 33,405 | -2,595 | -2,595 |
| 2 | 64,215 | 35,793 | 11,793 | 9,198 |
| 3 | 68,590 | 38,228 | 14,228 | 23,426 |
| 4 | 73,050 | 40,710 | 16,710 | 40,136 |
| 5 | 73,900 | 41,180 | 17,180 | 57,316 |
| 6 | 78,487.50 | 43,732.50 | 19,732.50 | 77,048.50 |
| 7 | 79,380 | 44,226 | 20,226 | 97,274.50 |
| 8 | 80,272.50 | 44,719.50 | 20,719.50 | 117,994 |
| 9 | 77,300 | 43,060 | 19,060 | 137,054 |
| 10 | 85,965 | 47,883 | 23,883 | 160,937 |
| 11 | 94,800 | 52,800 | 28,800 | 189,737 |
| 12 | 103,805 | 57,811 | 33,811 | 223,548 |
| Scenario | Disclosed change versus base | Annual operating profit (CU) | Cumulative break-even | Action gap to 120,000 CU |
|---|---|---|---|---|
| Base | No scenario rate change | 223,548 | Month 2 | 0 |
| Upside | Revenue +10%; variable cost +3%; fixed cost +2% | 299,272.74 | Month 1 | 0 |
| Downside | Revenue −12%; variable cost +6%; fixed cost +3% | 77,176.68 | Month 5 | 42,823.32 |
Read annual profit, cumulative break-even and the action gap
| Finding | Next workflow | What remains separate |
|---|---|---|
| Profit layer is unclear | Profitability pillar | Defines contribution, gross and operating layers |
| A dated receipt or payment may create a shortfall | Business cash-flow review | Uses opening cash and dated movements |
| Near-term cash dates matter | 13-week cash-flow forecast | Owns weekly cash roll-forward |
| Receivables, inventory or payables drive cash use | Working-capital workflow | Owns operating cash-cycle assumptions |
Build the twelve-month scenarios
- Business Budget & Profit Forecast
Compare base, upside and downside monthly budgets to identify annual operating profit, cumulative break-even and the action gap
Budget and profit-forecast questions
- What belongs in this operating budget?
- Comparable revenue, variable costs, fixed operating costs and one-off operating costs for twelve months on one declared basis.
- Is an operating-profit forecast a cash-flow forecast?
- No. It excludes opening cash and dated receipts and payments. Run the dated cash workflow separately.
- How should upside and downside cases differ?
- Clone the reconciled base, change only named drivers and retain all unchanged assumptions so the difference is explainable.
- What does cumulative break-even mean here?
- It is the first month cumulative operating profit in the engine is non-negative. It is not a dated cash break-even or solvency result.
- How often should the budget be reviewed?
- Review when actual records or a material driver changes. The article does not invent a fixed review calendar.
Sources and calculation owner
- OpenStax: How and why managers use budgets — OpenStax: Durable educational context for planning and budget coordination.
- OpenStax: Prepare operating budgets — OpenStax: Supports operating-budget sequence and boundaries; Margin101 owns the engine outputs.
- OpenStax: Prepare financial budgets — OpenStax: Supports the distinction between operating and cash or financial budgets.
- US SBA: Write your business plan — US Small Business Administration: US publisher used only for durable monthly-projection context, not a US rule or forecast benchmark.