Setting a budget is a crucial thing for personal life or for your business.Setting a budget for your personal expenses avoid you from going into debts.And also a budget monitors your income and expenditure for your business, that helps the growth in your business.

1. Budgeting & Costs.
There fixed, and variable costs in a business and there are also direct and indirect costs. Direct costs
involved in the production of products and variable expenses used in the general running of the
company.
Fixed and variable costs
The variable costs will vary according to the level of production. If more products produced, then the
value of the raw materials used for the production will increase.
But the fixed costs will be the same whatever the production takes place. For example, rent & rates,
electricity, and salaries will not increase if the production level goes up. But also if there is no
production the fixed costs will not be reduced.
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Semi-variable costs
When production increases there will be increases in machinery and labour costs. To meet the heavy
load of work more labour will be required and also invest in more machinery. When forecasting the
production costs for your careful budget consideration is needed if not the budget will not be accurate.
More labour will be required and also invest in more machinery.
Selling expenses
After the increase in production more products available for sales, therefore more sales force is
required. In the event, the demand for the product goes up heavily more sales force needed to cope up
with demand for the product. So when preparing the budget, these things need consideration to avoid
cash flow problems as well.
Budgeting sales income
The forecast for this taken from the profit and loss account and usually, the first item appears in the
budget. Now the sales have increased this year whereas the budget was done based on last year’ s
financial report. So your forecasted figure might be wrong in your budget. Therefore, the budget needs
revision on a monthly basis to avoid inaccuracy. It is also essential to check the number of units sold
and the value of the units as well which you would decide before the setting up of the budget.

2. Who does the sales forecasting
If you are a sole trader, you will do the work on your own and if the organization is a significant one
everyone will get involved. It is essential forecasting of sales have to be well coordinated.
Setting a price for budgeting
You must be having an idea of the number of your goods sold in the market but cannot go along with
that. You need to do your calculations that include direct and indirect costs to arrive at the price for
your product. Also, make sure you are almost in line with the market price of your product if not your
sales will go down.
The price calculation will include the direct and indirect cost for the production of the products.
Directs costs are the cost of raw materials, labour for manufacturing, energy used to produce. The
indirect costs will be administration costs, marketing, sales force expenses, rent and rate.
Budgeting for overheads
We need to look at the indirect costs in running a business, mostly the rents.
Overheads include:
Rent & Rates
If you are renting a property, the charges fixed, and you know about it. When you own the same
property apart from the rent you may incur unexpected expenses like immediate repairs.
Salaries
It includes the monthly salary plus the employer's national insurance contributions for the year. It
might change that depends on the increase that you decide to give plus the annual bonuses.
Traveling expenses
It varies widely depending on the business that you run. If you have a consultancy business, you and
the staff will be going out a lot. Therefore careful calculation needed that might include the
accommodation expenses as well.
Insurance
Any business needs different types of coverages such as
 Public liability
 Employers liability insurance
 Building insurance
 Equipment insurance
 Product insurance
The types of insurance purely depend on your business; cost is fixed and mostly paid annually.
Telephone
It includes the cost of calls and the rental but again depends on your business activity. If the business
is busy phones used more and for a slow business also phones used more. When the market is going
down, you will call the potential customer. You will be safe if you analyse the past year's expenses to
arrive at a figure.
In this way, you should be able to forecast more overheads and include that in your budget. You
cannot afford to miss anything as it might lead to inaccuracy in the budget. It will take you a stage that
you cannot depend on the budget. If the budget is wrong, the consequences can be severe and will
affect your profit at the end of your financial year.