How to draw up a budget
- 1 Involve employees who will be responsible for the budget or who have information which will help you prepare forecasts.
- 2 Collect historical information on sales and costs.
- 3 Consider what your sales plans are, how sales resources will be used and any changes in the competitive environment.
- 4 Prepare your sales forecast, taking into account any seasonal variations in activity.
- 5 Use historical information, and any changes in operations or prices, to budget for overheads and other fixed costs.
- 6 Establish the relationship between variable costs and sales, and use your sales forecast to project variable costs.
- 7 Identify any non-operational cashflow, such as taxes and changes in financing.
- 8 Use your experience of payment patterns to forecast the timing of all income and expenditure items.
- 9 Bring together the figures, using spreadsheet or financial software, in a cashflow budget.
- 10 Prepare any other budgets you will find useful, such as those for profit and loss, and the balance sheet.
- 11 Ensure your budgets contain enough information to let you monitor the key performance indicators you use to manage the business.
- 12 Identify any significant areas of uncertainty, and if necessary prepare separate budgets for different scenarios.
- 13 Agree the budget with the individuals who will be responsible, and be prepared to amend it if your assumptions are unrealistic.
- 14 Regularly update budgets as actual figures become available and circumstances change.
- involve relevant employees
- take account of changes in your business and the business environment
- budget for all the key indicators you use
- update budgets as new information becomes available
- impose unrealistic budgets on unwilling employees
- automatically base budgets on historical performance
- set the budget in stone