Budgeting is a critical process of any successful business. Budgeting helps companies forecast cash flow and estimate whether internal revenue will cover external expenses. This financial process gives businesses insight into their financial schedule and affords them opportunities to make strategic business decisions to best leverage every dollar.
The specific budgeting practice known as “zero-sum budgeting” is gaining a lot of popularity especially in the eyes of entrepreneurs. In addition to its business value, it also gives entrepreneurs the ability to track and plan their own personal budget.
Because many entrepreneurs bootstrap and self-fund their own start-ups, the act of maintaining a strong personal budget goes hand-in-hand with running a fiscally-responsible company.
So, what is zero-sum budgeting? This budgeting technique requires taking the previous month’s earnings and plan the current month’s expenses based on those assumptions staying equal. Essentially, you’ll take any incoming money from last month, assuming it’s relatively consistent, and apply every penny towards some category.
For instance, if you have fixed expenses like rent, electricity, water, and cable, you’d put your earnings towards those expenses first because they are the most likely expenses you have this month. Then, you put additional earnings towards your estimated expenses like food, entertainment, or gas.
As you allocate your earnings towards monthly expenses, you may find that you have excess left over. When this happens, zero-sum budgeting requires that you still apply that earnings to some activity, be it savings, repayment of debt, or put into your business.
By visualizing where every incoming dollar is going, you can make better decisions not only with your personal finances but also your business.
Try taking the zero-sum budgeting quiz below from Health IQ to see how equipped you are to start using this budgeting technique.