All businesses dread producing budgets and forecasts because as soon as they are agreed they are out of date. Most forecasts are built up from 4 elements.
Firstly the sales of the company. Is the budget based on the expected sales or the targeted sales? Is the detail of the forecasts measurable. Often the forecasting of sales requires a totally different approach to producing budgets for the company as a whole. Ultimately figures should be agreed that are achievable, and then desirable. But optimism should not be ignored and contingency built in should these optimistic forecasts be correct. Likewise prudence should also be allowed for and plans made should forecasts not be achieved.
Secondly the variable overheads should be established and linked to performance. This can include materials and productive wages but may also include carriage and numerous other items
Thirdly the fixed overheads or those costs which are fixed irrespective of sales. This will include items such as Rent, Insurance, etc
Finally the cost of financing the business. This will include any borrowing but also the return on investment if the company does not have external borrowing and is funded by its owners.