These series of articles will be talking about how to create an operating budget. A lot of times we think of budgets as very scary processes to be avoided at all cost. However if we break down the process into smaller parts we see the process is not as hard as we make it.
The first step is to create the revenue budget: Why start with revenue rather than expenses. This is because the level of production is determined based on the projected sales. If we do not know how much sales to expect then we can accurately predict our cost. Sales revenue is determined by many factors such as the economy, industry trends, new innovations, past performance, etc. Gathering as much information as you can about potential demand for your product and service, you can predict as close as possible what sales for your budget period should be.
Next step to be discussed: Creating the production budget