Zero based Budgeting sponsored links:
Zero based budgeting is prepared with assumption that all the business start from zero based. This mean all previous performances will not be taken into consideration in zero based budgeting.
Zero based budgeting is especially useful when a company experienced total change of core business or embarking on a new business venture. The main advantages of a zero based budgeting are:
1. You can identify wastes and eliminate them in the budget.
2. It gives the management the opportunity to identify weaknesses in its operations and implement corrective actions.
3. Preparing inflated budget that try to covers previous operational losses can be avoided.
4. The financial management of the company will be more effective and efficient.
The disadvantages of a zero based budget are:
1. If previous operational performance is not taken into consideration, the budget profit and loss may be overstated.
2. The whole process of forecasting could be more complex and time spent would be much higher because of additional works involved in researches.
