More than 30 years ago, the concept of “zero-based budgeting” was fresh, exciting, and miraculous. This was the method famously advocated by President Carter to help the U.S. Congress to cut spending. But, as you might imagine, nothing really changed. In the 90s, software companies began exploring new possibilities for budgeting systems that would be easier and more automated than ever, leaving smaller margins for the kinds of errors and short fallen predictions of previous years. Still, most of the people in charge of financial planning persist in old ways of doing budgeting/
An awful lot of the companies won’t consider changing or creating new ways of doing budgeting for the company primarily because they are used to the way things are, and since hardly anyone else in the company is even interested in the budgeting. But how much could the old ways be costing on the bottom line?
A business budget is only meant as a forecast of your business cash sources and business cash expenditures during a set period of time. The budget seeks to answer a simple question: In x amount of time, how much money will come into the business, and how much will have to go out? When you apply for a line of credit from a business bank account, you have to demonstrate these predictions, and what makes them sound.
Generally speaking, a business budget covers up to a one year timeframe, breaking out the expected revenues and expenses on a month-by-month basis. It should be able to show where each expected revenue and expense will come from or go to. The line of credit extended by the bank depends on the sound accuracy of this prediction.
Some business owners, the ones who are not beholden to banks for using lines of credit or other financing, do not even formally do a budget of any kind on paper or the computer, yet they still budget, whether they realize it or not. By simply estimating how much money they will have left after the monthly bills are paid, those managers and owners are performing basic budgeting skills.
