According to the research of Harvard Business Review (HBR), most businesses need to reinvent their business strategies every 3 years to survive longer in the market. But, after the pandemic, it became more important to reinvent businesses in a short period thus; now, many companies have started reinventing their businesses every 12 months.
To survive and most importantly to thrive in this new normal it is essential to set a new set of guidelines/rules across all the business functions & industries and most importantly across the budgeting policies to make it more flexible.
A flexible budget adapts to a company’s activity or volume levels and constantly flexes with a business’s variations in costs.
Here are 3 ways to make budgeting more flexible:
- Set your aims on ranges: Setting aims on ranges definitely helps in creating a budget more flexible as your ability to adjust to a changing environment gets enhanced when you view your goals as a range rather than a single point. So for any type of business, it is very important to determine your range consciously and clearly.
- Establish Predefined Boundaries: Traditional budgeting hinders innovation and renewal in the organization while helping the large manufacturing group to set up a corporate venture fund. But, having a clearly defined and calculated approach can help to move forward while more intricate budget re-calculations are carried out. Limitations are also helpful in less serious downtowns, for example, if a single supplier changes price like raising the costs of the products, then here limits come to the rescue, limits provide the ability to make rational judgments without constantly re-requesting budget approval and thus it helps in reducing the micro-management.
- Divide the budget and create your budget with set fixed costs: Firstly,Divide your estimated production by the amount you intend to spend on variable costs. This will give a cost-per-unit starting point. Secondly, your budget should be formed using fixed costs that will not change and as well as variable costs that are represented as percentages and can be changed depending on the revenue.
Reference :https://www.indeed.com/career-advice/career-development/flexible-budget