Collecting Information and Forecasting:

All budgets must be based on accurate and reasonable information. A budget derived from information which is irrelevant to the actual organisation will result in figures and plans which in no way reflect the true needs of the organisation.

The most obvious source of information for budgeting purposes is the organisation's current financial records.  Information on previous performance should always form the basis of budget forecasts. Analysis of reports such as previous budgets (and actual results achieved), the business's profit and loss statement, and cash flow statement, will allow the identification of areas of particular strengths and weaknesses, and provide the opportunity for budget planners to address those areas in any new budget process.

Once the information is gathered and analysed, budget planners should seek to forecast any major changes in the industry/organisation that could affect the financial performance of the business during the coming year. This process will allow for the inclusion of any special circumstances within the budget.

An example of a special circumstance in the real estate context could include the purchase by the agency of a new commercial property (to relocate offices). Such a project would involve increased expenditure to meet purchase cost, relocation costs and the cost of business down time. If the purchase involved finance, it would also mean increased repayments following the purchase.

As such a circumstance is likely to be one off or at least rare, the inclusion of expenditure relating to the purchase is likely to involve reducing the budget in other areas of expenditure to compensate.