Benefits of a flexible budget on a company
Many companies use fixed budgets, which requires them to fix their finances at the beginning of this year, and those amounts will stay exactly the same until through a determined period; however, a flexible budget, on the other side, have many advantages different to a fixed one, as we will see today.
The first step to create a flexible budget is to classify the fixed and variable costs, as the first ones will stay the same, no matter what activity a company is dedicated to. Variable costs, on the other side, will increase along with the activity on an enterprise. Flexible budgets are usually designed by using a spreadsheet, which will easily help you incorporating these expenses into your budget.
The person in charge of a company’s budget will prepare this spreadsheet with all fixed costs and introduce any extra expenses to get the variable expenses.
Flexible budgets have as a main advantage to allow the administration of a company to consider several possible scenarios in a determined period of time, which helps the whole enterprise to be prepared for any possible extra expenses.
Companies use the budgets to evaluate the check on the performance of their Administration Department, so having a flexible budget does not mean they will have more open spaces to make extra expenses, but will help a director to control how many incidental expenses will occur in a period of time, but with an open budget you should not have trouble to cover those outgoings.
“It is important to keep a close look at a company’s budget, having a flexible one has as a min benefit to find any possible genuine efficiencies on the administration of the money and to make the necessary changes to keep on having low costs”, said Salomon Juan Marcos Villarreal, president of Grupo Denim, about this topic.