And when a cost decreases, that budget line item will follow suit as well.Ĭonsider the cost of goods sold (COGS) for B2C businesses. When a variable cost increases, say due to a rise in the production level, the associated line item will also increase. Flexible Budget Examplesįlexible budgeting is useful for line items that can be tied to something else in your forecast. The difference between your projected and actual figures gives you the flexible budget variance, an essential metric to understand how well your predictions align with your actual performance. After each month (or accounting period) closes, a flexible budget assumes you’ll compare projected revenue to actual results and adjust the next month’s expenses accordingly. While creating and maintaining real-time adjustments can be somewhat time-consuming, there’s tangible value in terms of more efficient budget allocations and more agile decision-making. It’s most common to update forecasted line items in a flexible budget following a monthly review of total costs and top-line growth. This approach allows for budget adjustments to respond to the latest actuals in real time while taking into account external factors, like economic shifts and rising competition, that add to the unpredictability of managing a business. Most flexible budgets use a percentage of projected revenue to account for variable costs rather than assigning a rigid numerical value at the start. Flexible budgeting is a hybrid approach to strategic planning, as it begins with a static framework - based on costs that aren’t likely to change - and layers a flexible budgeting system on top that allows other costs to fluctuate. More than likely, specific sections of your balance sheet or income statements could benefit from a bit more flexibility.įlexible budgeting is an adaptable budgeting method that enables businesses to modify expense constraints in real-time according to changes in costs, production, sales, or other factors. A flexible budget lets you adjust to global trends and economic changes rather than trying to anticipate when those will happen (and likewise brace for their impact).Īnd because flexible budgets expand and contract in real time, they allow businesses to exist as the organic, growing entities that they are.īut to really fall into strategic finance and budgeting, rather than asking if your budget should be flexible or static, incremental or strategic, you should focus on what line items you can forecast with a flexible method. Which is why companies have moved away from traditional static budgeting to more flexible budgeting strategies. Recent years have illuminated how unpredictable the marketplace can be - making it increasingly challenging to create accurate budgets and execute an effective budget analysis on a recurring basis. If the last few years have taught SaaS companies anything, it’s that sometimes uncertainty is the only certainty there is.
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