Not Just One Type of Budget
May 01, 2016
When we hear the word "budget," many times we think that there is only one type of budget. In reality, there are several types of budgets that can be used in a business. An owner simply has to decide which type of budget will be most beneficial for the business.
A static budget does not change once it is prepared. In other words, it remains the same until a subsequent budget is prepared. The typical budget is usually 12 months, but a business owner might decide to use a quarterly budget or semi-annual budget.
A rolling budget splits the annual budget into four quarters. It is called a rolling budget because as soon as one quarter ends, the budget "rolls" in another quarter. This always gives a business at least four quarterly budgets (goals) to achieve. The rolling budget could use different time periods other than an annual budget, but an annual budget is the most common when a rolling budget is used. This is a great management tool as it forces the business owner and managers to keep abreast of changing circumstances in the business and make appropriate changes, so the business will be on target to achieve its predetermined goals.
When using a fixed budget, all of the numbers in each account remain the same throughout the entire budget period. They do not change for variances in sales, production, etc.
A flexible is also referred to as a variable budget or a "what if" budget. This type of budget includes what is expected to be the actual performance and targeted goals of the business, but it might also include a best case or worst case scenario. This type of budget allows the owner to make budget adjustments in other categories (either increases or decreases) as revenue or some other variable changes that would affect other income or expense categories.
Posted by Richard Weinberger, PhD, CPA
Chief Executive Officer
Association of Accredited Small Business Consultants