Control Costs With Zero-Based Budgeting

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Money-1132279_1280Budgeting is a tool for dealing with the future.  It helps you turn expectations into reality.  In its simplest form, a budget is a detailed plan for future receipts and expenses.  As the budgeted period progresses, you should compare actual results with your forecasted goals.

 The method of budgeting which I recommend is called zero-based budgeting.  This method makes the assumption that last year’s expenses were zero, and begins the budgeting process from that point.  For example, this budgeting formula assumes that your supplies expense account begins at zero.  You must first determine who consumed what supplies last year, who will be consuming them this year, and how much will be consumed.  In this manner, zero-based budgeting forces you to actively manage your consumption while reviewing your costs. 

The effect of zero-based budgeting is that you will no longer include prior year’s mistakes and overspending in the current year’s budget. 

Few small businesses use zero-based budgeting, despite its many advantages.  Not budgeting is truly the most expensive mistake the small business owner can make.  Sure, zero-based budgeting may take more of the owner’s time, but it can pay big dividends in increasing bottom-line profitability.