#1 Look up historical information

In creating a budget for next year, your first step is to have a look at last year's financial statements and budget (if one exists).

Unless there is a change in the number of people employed, or the location and type of business, the overheads of the business for last year will be a good indicator of next year's overheads.

Costs such as electricity, rent, rates, administration costs, leasing and audit fees are overeheads, and they will largely remain the same from year to year. However a small increase should be planned due to inflation.

If your organisation has been in operation at least one year, there should be plenty of historical financial data to help you predict next year's income and expenditure.

#2 Look at the business plan

All businesses should develop a business plan. The purpose of developing a business plan is to set the goals and objectives of the business, and to determine what strategies and actions are required to achieve these objectives.

Although historical data helps to predict income and expenditure for next year, the business plan may contain new strategies that will radically change the pattern of income and expenditure.

Formulating a budget is tehrefore a major part of the developing the business plan.

Business plans and budgeting are inseparable.