Zero based budgeting: Why zero based budgeting—and why

Why zero based budgeting—and why now? Zero-based budgeting (ZBB) can be the answer for organizations looking to grow the top line, dramatically reduce waste, free up capital, and sharpen their competitive edge. Regardless of your industry or the type of business you’re in, ZBB can be a transformative financial planning technique. Zero-based budgeting is an approach where you account for every dollar earned and earmark it for a specific purpose. Also known as a zero-sum budget, it is designed to leave no money to float in your bank account monthly. Zero-Based Budgeting Meaning and Definition Zero-based budgeting in management accounting involves preparing the budget from scratch, that is, with a zero-base. It involves re-evaluating every line item of the cash flow statement and justifying all the expenditures a department will incur. Thus, the definition goes as “a method of budgeting whereby all the expenses for the new period are calculated on the basis of actual expenses that are to be incurred and not on the differential basis ... To make a zero-based budget, list your income, plan your expenses, make sure income minus expenses equals zero, track expenses, and create a new budget every month.