Discover the power of zero-based budgeting

Tackle your annual budget from scratch, and you’ll discover many things about the finances of your business that you have never noticed before.

Discover the power of zero-based budgeting
- Advertisement -

The idea in Arthur’s mind wouldn’t go away. Finally, he plucked up the courage to broach the subject with his wife, Margaret.

“Darling,” he said, “in 30 years we’ve never left the farm for more than a week. With Derek running it so well, I think  it’s time we took an extended holiday.”

Margaret’s eyes lit up expectantly.

- Advertisement -

“Let’s do that cruise you’ve dreamt of and combine it with some travel in Africa,” he continued.

“I’ve found a package deal for a cruise on the Nile, followed by a trip via the Suez, from Egypt to Cape Town. But we need to get ourselves to Cairo, and I’d like to drive. It’ll mean being away from home for about six months.”

Getting down to the details
They started planning in earnest. As with any well-managed project (or business for that
matter), they needed to mutually agree on their overall objective. That was quickly done.

Margaret wrote it down: ‘To drive to Cairo, visiting the scenic wonders of Africa en route,
spend a week on the Nile, and return on a cruise liner via the Suez and Zanzibar.’

The maps came out and various routes were studied. Travel guides were read and
people who had experience of the journey were quizzed. Finally, they had a general
route in mind, with sufficient flexibility along the way if there was good reason.

With the objective clear and the route mapped, the next step was to decide what they needed for the journey: the vehicle, the tools, the spares, food, clothing and shelter. More research was done and another list drawn up.

So far, so much fun. Now came the least pleasurable job of all: drawing up the budget. They had no history, no information of costs in the countries they would visit. This was truly a budget from scratch, on a clean piece of paper, a real ‘zero-based’ budget.

They set about it, and by the time they had finished, they knew every single item required, its cost, and when it would need to be incurred.

‘Is it really necessary?’
For anyone, and for any business or project, drawing up a zero-based budget is a demanding exercise requiring a tough mind. But it’s a good one.

The annual budget of every business, big and small, should be zero-based, with management turning over every number and asking the question ‘Why is this necessary?’, and even more importantly, searching for those missing numbers, expenditure that should be incurred for the benefit of the business.

Tackle your next budget this way, and you’ll be amazed at what you discover. You will suddenly notice past errors and inefficiencies, happily used as a base for lazy last-year-plus-a-bit budgets. Best of all, opportunities will stare you in the face.

Do an Arthur and Margaret-style zero-based budget next year. It’s a sure path to better profits.

- Advertisement -