{"id":101591,"date":"2023-02-28T17:04:14","date_gmt":"2023-02-28T17:04:14","guid":{"rendered":"https:\/\/businessyield.com\/?p=101591"},"modified":"2023-02-28T17:04:17","modified_gmt":"2023-02-28T17:04:17","slug":"zero-based-budgeting-2","status":"publish","type":"post","link":"https:\/\/businessyield.com\/bs-personal-finance\/zero-based-budgeting-2\/","title":{"rendered":"ZERO-BASED BUDGETING: Meaning, Template, Examples","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"

Your income minus your expenses should equal zero in a zero-based budgeting approach. Savings goals, debt repayment, and fun are all included. You are encouraged to spend every last penny of your monthly salary through the zero-based budgeting strategy. But that doesn’t mean you should go on a shopping binge. The plan includes important goals like conserving money and paying off debt, as well as spending on pleasant things. The goal of the zero-based budget, often known as the zero-sum budget, is to give every money a purpose. Let’s look at the definition, template, and examples of zero-based budgeting. This is how it works.<\/p>

Zero-Based Budgeting Definition<\/strong><\/span><\/h2>

ZBB is a method of budgeting in which all expenses for each new period must be justified. Every function inside an organization is assessed for its needs and expenditures as part of the zero-based budgeting process, which begins with a “zero base.” The budgets are then constructed around what is required for the next period, regardless of whether each budget is higher or lower than the preceding one.<\/p>

How Zero-Based Budgeting (ZBB) Works<\/strong><\/span><\/h3>

ZBB enables the implementation of top-level strategic goals into the budgeting process in business by attaching them to specific functional areas of the firm, where expenses may be first aggregated and then measured against prior results and current expectations.<\/p>

Because of its detail-oriented character, zero-based budgeting may be a multi-year process, with managers or group leaders reviewing a few functional areas at a time. By avoiding blanket increases or decreases to the budget of a former quarter, zero-based budgeting can help reduce expenditures. Yet, it is a time-consuming procedure that takes far longer than conventional, cost-based budgeting.<\/p>

The strategy also prioritizes areas that generate direct revenue or production since their contributions are more simply justified than those in client service and research and development.<\/p>

Zero-Based Budgeting vs. Traditional Budgeting<\/strong><\/span><\/h2>

Traditional budgeting advocates for incremental increases above previous budgets, such as a 2% rise in spending, rather than a justification of both old and new expenses, as zero-based budgeting requires.<\/p>

Traditional budgeting simply assesses new spending, whereas ZBB begins with zero and requires justification of old, recurring expenses as well as new expenditures. Zero-based budgeting places the onus on managers to justify expenses, with the goal of driving value for a business by managing costs rather than just revenue.<\/p>

Zero-Based Budgeting Template<\/strong><\/span><\/h2>

The zero-based budgeting template is a budget generated primarily to justify costs for each new period, where the budget begins from zero, as opposed to a standard budget, where modifications are made in previous budgets. The difference between all sources of income and all sources of expenses must equal zero in order to create a zero-based budget.<\/p>

Components of Zero-Based Budgeting Template<\/strong><\/span><\/h3>

The following are the general details in the template for zero-based budgeting:<\/p>

#1. Heading at the Top:<\/strong><\/span><\/h4>

The template will include the header ‘Zero Base Budget Template’. It will remain unchanged for all template users. Furthermore, the heading informs the user as to why such a template was created.<\/p>

#2. Budget Highlights:<\/strong><\/span><\/h4>

This budget overview detail appears at the beginning of the template. It includes information on overall income and expenses for the period, as well as the total balance on an actual and anticipated basis. The values collected from the next stages will be used to populate these figures automatically.<\/p>

#3. Fixed Expenses:<\/strong><\/span><\/h4>

The user will enter all fixed expenses in planned and actual values from all areas.<\/p>

#4. Variable Expenses:<\/strong><\/span><\/h4>

The user will enter all variable expenses in budgeted and actual values from all areas in this section.<\/p>

#5. Balance:<\/strong><\/span><\/h4>

After removing the total fixed and variable expenses from the total income, the balance remaining will be determined automatically. As a result, this balance of predicted figures should equal zero, implying that the budget should be totally balanced.<\/p>

How Should You Use this Template for Zero-Based Budgeting?<\/strong><\/span><\/h3>

The steps for using the template for zero-based budgeting are as follows:<\/p>