Zero based budgeting

What is zero-based budgeting? 

Zero-based budgeting (ZBB) is an approach to making a budget from scratch. The budget is not based on previous budgets. Instead, the budget starts at zero. With zero-based budgeting, you need to justify every expense before adding it to the official budget. The goal of zero-based budgeting is to reduce spending by looking at where costs can be cut. Zero-based budgeting process The process of zero-based budgeting follows the same basic steps: Identify business goals Develop and analyze new ways to achieve goals Discover new ways to fund business processes Prioritize funds When to use zero-based budgeting As a small business owner, you’re busy. You might not have time to make a budget from scratch every few months or even each year. Some companies might benefit from creating a zero-based budget once every few years and using a traditional budget in the meantime. How can zero-based budgeting help small businesses? Zero-based budgeting is a great way to improve and manage your small business budget. It can help you: Create your first budget: Zero-based budgeting is necessary if you are a startup. Startups do not have previous budgets to look at, so you would need to start from scratch. This gives you the chance to really plan your budget and shop around for the most inexpensive vendor. Save money: Zero-based budgeting can help you save money and improve your profits for the year. By analyzing where unnecessary business expenses are coming from, you can eliminate them. Instead of doling out cash for the same things that have no benefit to your business, you can strategize how to effectively spend money. Know where money is going: If you give managers a budget, you want to know where the money is going. Managers must write a description of how much money they need and what they will use it for. Conclusion Zero – based budgeting targets at presenting true expenses to be incurred by a department. Although this budgeting method is time consuming, this is more appropriate way of budgeting. This includes all inclusive analysis of the budget proposal and if the managers make irrelevant variations so as to achieve what they want, they are probably exposed.