Budgeting Methods: How to choose one for your business

A budget can be defined as a written estimate of the future financial performance of a business, project or a particular financial unit. With the help of budgeting one can effectively deploy financial resources, equipment and workforce to the business and can estimate the future performance of the business. A proper budgeting technique can positively affect the financial impact of your business. There are two major types of budgeting techniques and these are the cost budgeting technique and the operating budgeting technique.

With the help of the cash budgeting technique the financial position of a company is estimated for a certain period of time. On the other hand the operating budgeting technique forecasts the operating revenues and operating expenses of a business for a certain period of time. The operating budget can be further broken down into different small budgets such as labor budget, production budget, sales budget, expense budget and capital budget.

In order to make your budget you can use three different types of approaches such as top down approach, bottom up approach and zero-based budgeting approach. In top down budgeting, budget is prepared by the upper management and is imposed on the lower layers of the company or business. In bottom up approach budget is prepared by the supervisors or middle managers. In zero-based budgeting technique the budget of the individual department or the unit is prepared by the manager or supervisor of that department by starting from scratch.

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