Running a successful business is a lot like running a successful household, right down to the budget. Creating a budget in life or in business really helps you be intentional with your finances. You have a plan for each dollar earned so that you accomplish your goal without wasting money.
Personal budgeting is a great way to hit savings goals and pay off debt like student loans. It is a pretty straightforward process, but what about budgeting for your business?
To determine whether or not zero based budgeting is right for your business, you need to first understand the difference between zero based budgeting and traditional budgeting.
Traditional budgeting is typically based on the last budget period. You add a few percentage points to key areas and you call it a day. However, with zero based budgeting you start over again (from a base of zero) completely each period. Every line item needs justification.
Traditional budgeting only analyzes new line items. ZBB takes a hard look at both new and old expenditures. With ZBB you make no assumptions about what it will costs to run (and grow) your business over the next year.
This approach may seem like a no-brainer. Why wouldn’t you want to redo your whole budget and tailor it specifically to the coming year? Well the big downside is that it takes a lot longer. Spending a lot of time doing from scratch what should be automated or repurposed is not exactly the pinnacle of productivity or efficiency.
Determining your best budgeting model will help you stay on track, financially. But how do you do it? Well take a look at your budget from last year and determine how much of it would change if you use the zero based method. If the answer is not more than traditional budgeting is probably your best bet. It will save you time and money during the process. But if you us business that is constantly changing (and don’t have a ton of line items), you may want to give zero based budgeting a try.
The good thing is, you don’t have to commit to one way or the other forever. If you use zbb and find it wasteful and time consuming, switch back to traditional budgeting with incremental increases each year.