Concept:
Cost budgets help make a Company run smoothly and profitably. Anyone who influences costs should be given a budget against which to measure actual expenses. This helps control costs, let people know where they stand and avoids nasty surprises. Cost budgets can be set on the basis of:
- Standard costs
- Annual revisions
- Prior year levels
- Inflation
- Selling expenses
- Zero based
Zero-based budgeting assumes that expenditure is Nil and that each cost element has to be justified separately.
Example:
Try looking at your area of business in this way. Assume the business was your own. Ask yourself “Would I spend this money if it was out of my own pocket?’ If the answer is no, then don’t spend it! Treat Company money as if it were your own. If everyone did this it will have a significant impact on costs…and the bottom line.
Can you identify 3 areas where you can save money for your Company?