A budget is a plan for revenue and spending across a period, usually a year broken into months.
How it differs from a forecast
A budget is a target, set once and held. A cash flow forecast is a prediction, updated as things change.
The budget answers what should happen. The forecast answers what is going to.
Building one
Start from last year rather than from nothing, because the shape of the year is already known — including its seasonality.
Fixed costs are largely known and can be listed directly. Variable costs are better expressed as a percentage of revenue than as an amount, so they move correctly when revenue does — see fixed and variable costs.
Revenue is the uncertain line, and the useful discipline is to plan spending against a revenue figure the business is confident of rather than one it hopes for.
The comparison is the point
A budget filed and never revisited has no effect. Its value is entirely in comparing it monthly against actual results and asking why each line differs.
Persistent overspending on a line is a pricing or process problem. A one-off is not. Distinguishing them is what expense trend is for.
Below break-even
A budget that does not reach break-even is not a plan, and no amount of cost discipline will make it one.
A budget written for a lender rather than for the owners sits inside a wider document — see business plan.