What Is Zero-Based Budgeting, and How Can it Help Small Businesses

What Is Zero-Based Budgeting, and How Can it Help Small Businesses?

To stay on top of your business expenses, you need to constantly plan and update your small business budget. When you make a traditional budget, you use the previous budget and tweak it. This might not be the most effective way to make a budget, especially for small companies. Another option is zero-based budgeting. What is zero-based budgeting?

What is a budget?

Before learning about zero-based budgeting, it’s important to understand the different parts of a typical business budget. Here are three things a budget needs to do:

Project revenue: How much will you earn?

Determine expenses: How much will you spend?

Predict profits: How much will you have after expenses?

What is zero-based budgeting?

Zero-based budgeting (ZBB) is an approach to making a budget from scratch. The budget is not based on previous budgets. Instead, the budget starts at zero.

With zero-based budgeting, you need to justify every expense before adding it to the official budget. The goal of zero-based budgeting is to reduce spending by looking at where costs can be cut.

Your employees might be involved in creating a zero-based budget. You can ask employees what kind of expenses they will have and figure out where you can reduce business expenses. If an expense does not benefit the business, or if it can be done in-house, it is axed from the budget.

Zero-based budgeting process

There are a few different steps in zero-based budgeting to keep in mind. The process of zero-based budgeting follows the same basic steps:

i) Identify business goals

ii) Develop and analyze new ways to achieve goals

iii) Discover new ways to fund business processes

iv) Prioritize funds

By following these zero-based budgeting steps, you will determine what expenses go toward achieving business goals that directly benefit your company. Then, you can find new ways to spend.

With ZBB, you might find that your budget fluctuates significantly between periods. You might have a budget of 5,00,000 one year and 3,50,000 the next, since budgets aren’t based on previous ones.

When to use zero-based budgeting

As a small business owner, you’re busy. You might not have time to make a budget from scratch every few months or even each year.

Some companies might benefit from creating a zero-based budget once every few years and using a traditional budget in the meantime.

Zero-based budgeting vs. traditional budgeting

Unlike traditional budgeting, zero-based budgeting does not look at budgets made in prior years. Traditional budgeting looks at prior-year budgets and adjusts based on the information in those budgets. For example, if you hire one new employee, you would increase your budget since you would add new wages to your payroll expenses.

Zero-based budgeting is more time-consuming than the traditional approach because you need to start from scratch and strategize where your expenses can be cut. You need to know where every dollar is going to implement zero-based budgeting.

Both zero-based and traditional budgeting are important in creating departmental budgets. If you have managers of different departments, you might allocate funds to them for the year. With traditional budgeting, managers are encouraged to spend their allowance so they don’t lose it. Zero-based budgeting is a little more frugal, and you might not see unnecessary spending, since every expense is accounted for.

How can zero-based budgeting help small businesses?

Zero-based budgeting is a great way to improve and manage your small business budget. It can help you:

Create your first budget: Zero-based budgeting is necessary if you are a startup. Startups do not have previous budgets to look at, so you would need to start from scratch. This gives you the chance to really plan your budget and shop around for the most inexpensive vendor.

Save money: Zero-based budgeting can help you save money and improve your profits for the year. By analyzing where unnecessary business expenses are coming from, you can eliminate them. Instead of doling out cash for the same things that have no benefit to your business, you can strategize how to effectively spend money.

Know where money is going: If you give managers a budget, you want to know where the money is going. Managers must write a description of how much money they need and what they will use it for.

How to be a truly Global Businessman

How to be a truly Global Businessman

What does it mean to take your business to a global level? Does it entail speaking foreign languages? Does it mean a business expansion across foreign lands? Starting an international chain? Or simply playing it smart in the commercial world? Globalisation today has revolutionised traditional leadership development in the business world. Understanding the language spoken by your customers and target audience, including understanding the business etiquettes and cultural nuances in their country are just a few basics, in order to prepare Indian business owners today for the various demands of the global marketplace. A successful business today requires global leaders. You can’t just act global, you have to truly be global in your approach and vision.

Why the need to be global?

We read and hear so much banter on thinking globally and acting like a global citizen. Marketing and advertising companies, company slogans and commercials seem to be displaying such messages everywhere around us, but what do they actually mean for a local business? Well, for most companies it is a PR-oriented message that makes the managing partners come across as “in sync” with other cultures and corporate ethics worldwide. However, this is what they are really saying:

You need to think of your market as the map of the globe. If you are looking to sell a shoe design and are looking for an ideal market where you can find success, don’t just research your back yard, but research the demographics and the characteristics of people in the other part of the world too. How do you know that your product has more of a market in your home town than in South Korea or Australia? You don’t. There is a reason why your morning cappuccino from Starbucks tastes the same whether you are sipping it in Tokyo, New York, Bangkok or Buenos Aires.

Learning to become an International Businessman is no longer an option. It is now an essential skill for one’s survival and the sky is the limit. The range of countries and systems involved in production today demonstrates that business in most industries (be it automotive, electronics, food or even pharmaceutical) has become inescapably linked across borders. And hence, the foremost soft skill to be picked up by international business people is the art of being global. So how do you do it?

Respecting cross-cultural differences

Respectful and culturally appropriate behaviour is essential when doing business overseas because what’s customary in one country may be considered rude in another. It is important to be au courant in an international business setting and follow certain etiquettes so as to avoid any embarrassing mishaps that could potentially ruin your business relationships! For example, did you know that in France it is extremely common for a man to greet a lady with a quick kiss on the cheek, even in a business setting, while in China and India that sort of contact with business associates is clearly scandalous. Many European women will in fact stick their hand out if they prefer a handshake; however, this could seem intimidating to people from North America and the United Kingdom.

Every country has its nuances. For instance, standing very close and using physical contact during conversations is extremely common in Brazil. With regard to food, they also consider it disrespectful to use their hands instead of cutlery – even if it’s a sandwich or a pizza! In New Zealand and around Australia, punctuality is of the highest importance. They also like keeping their conversation to a minimum during meals and also believe that dinners are strictly reserved for social interactions and that business matters should only be discussed over lunch.

In countries like China, Japan, India and other Asian countries, there are certain unwritten customs to be followed. You are expected to let your business affiliates leave the meeting room first, if not the senior most members. Avoid saying “no” during business discussions since it is considered rude. On the other hand, terms such as “we’ll see”, “I will try” or “possibly” are often used so as not to hurt other people. Such responses in western countries will make business owners look indecisive and untrustworthy.

“Good manners” is something that varies greatly from country to country. And whether or not you take the time to familiarise yourself with the local social customs, you may appear rude and naïve, and even run the risk of offending those you’re doing business with! For example, it is recommended to remove your footwear outside any premises, or try not to finish your meal until the very last morsel. So learning the cultural norms from different countries, especially your partners who you might already be working with, will ensure that you’re polite and professional wherever your travels take you.

Build your brand value

Brand awareness is always a matter of concern, be it in business or between individuals. Individuals everywhere want to be noticed both socially as well as professionally. Increase your social media presence, develop your website and invest in a good SEO or digital marketing package.

“The first rule of thumb is to start thinking globally early,” says Allen Adamson, Managing Director of the marketing firm Landor and author of BrandSimple. Studying global markets and assessing your brand in relation to your competition is mandatory. Who’s out there? Who’s winning? Who’s losing? The more you’re familiar with the country’s local demographics, the easier it will be to determine your market and promote your brand.

Be a real global leader

According to the Harvard Business Review, today’s greatest business opportunities, as well as the greatest challenges we face, are global in nature and therefore demand leaders who think globally and have a hawk’s eye vision. While the old mantra “think global, act local” is woefully inadequate to describe the complex realities global leaders are facing, true global leaders act as bridge builders, connectors of resources and talent across cultural and political boundaries — relentlessly dedicated to finding new ways of creating value. Such leaders possess a global mindset and are able to interpret and decode situations from multiple perspectives. They have an insatiable interest to learn about other cultures and care enough to understand other people’s perspectives, while being knowledgeable about economic and political issues around the world.

Concluding statement

Globalisation today is headed toward being a newfangled culture, rather than just a revolutionary change in society. Technological advances have made the world smaller and more accessible. Now even small businesses can trade in a global marketplace with the help of the Internet, virtual conferencing and social media. But as the doors open to international trade, challenges enter the playing field along with the opportunities. By being aware of the intricacies of doing business globally, you can avoid seemingly insignificant pitfalls and realise the potential of an expanded market.

Blog contributed by: Alifya T.