Budgeting glossary: everything you need to know

If you’re new to budgeting, it can be helpful to learn all the terminology before you choose what method you’d like to use for your business.

In this article, we’ll outline all the key budgeting terms – from activity-based budgeting to zero-based budgeting – so you can choose the approach that best suits your company’s goals. Plus, with linked resources under each term, you can dive deeper into the topics that interest you most.

O que é orçamento comercial?

Business budgeting is all about creating a financial plan for your company. This process usually includes financial goal setting and allocating resources to long- and short-term objectives.

There are various methods for creating a business budget, including activity-based, zero-based, and flexible budgeting, each designed to meet different organizational needs. Below, we’ll briefly cover all the different types of budgeting so you can choose the method that best suits your objectives.

Types of budgeting methods

Orçamento baseado em atividades

Activity-based budgeting (ABB) allocates resources according to the activities necessary to achieve the company's objectives. This approach provides a detailed view of costs, focusing on the activities that truly matter.

Learn how activity-based budgeting stacks up against other methods in our blog.

Orçamento baseado em zero

Zero-based budgeting (ZBB) entails starting each fiscal year from scratch, with a zero base. In this approach, each department justifies its needs down to individual line items, regardless of whether the requested amount differs from the previous budget.

See how to apply zero-based budgeting at your organization in our blog.

Static budgeting

A static budget is a fixed budget that does not change. Unlike dynamic or flexible budgets, it remains constant throughout the fiscal period once it is set.

Discover the nuances of static budgeting in our blog.

Orçamento incremental

Incremental budgeting adjusts the previous year's budget by making incremental changes. Budgeting teams typically achieve this by increasing budget allocations to account for rising costs, such as higher rates and inflation.

Explore the benefits of incremental budgeting in our blog.

Value-proposition budgeting

Value-proposition budgeting allocates resources according to their value to the organization, emphasizing outcomes and results over activities or costs. This method aligns spending with the company's core values and strategic objectives, prioritizing investments that generate the greatest returns.

Learn how to apply value-proposition budgeting at your company in our blog.

Rolling budgeting

Rolling budgets are continuously updated budgets that extend the current budget period by adding a new period as the current one ends. This approach ensures that the budget remains relevant and responsive to changing conditions throughout the year.

Flexible budgeting

A flexible budget is a budget that can be adjusted based on changes in business activity, such as sales or production volume. These adjustments are typically pre-planned to prevent scalability challenges, such as handling more clients than the company can manage.

Discover how you can use flexible budgeting to quickly and easily create scenarios in our blog.

5 types of business budget

Master budget

A master budget consolidates all financial aspects of your business, allocating funds to each area. It serves as a comprehensive financial plan that departments refer to throughout the year to ensure their spending aligns with the overall corporate objectives and remains on track.

Operating budget

Operating budgets offer a high-level overview of business performance and a means to monitor revenue, variable costs, fixed costs, non-cash expenses, and non-operating expenses.

Typically updated monthly or quarterly, these budgets primarily focus on revenue and expenses. While they can be created using a bottom-up approach, they are often compiled using a top-down method with input from leadership.

Learn more about optimizing your operating budget in our blog.

Financial budget

A financial budget provides a detailed projection of a company’s income and expenses over a specific period. It encompasses all aspects of the business’s financial activities, including cash flow, capital expenditures, and long-term liabilities, ensuring that resources are effectively managed to achieve corporate objectives.

Cash flow budget

A cash flow budget forecasts the inflows and outflows of cash within a business over a specific period. It helps manage liquidity by ensuring that the company has enough cash to meet its obligations while identifying potential cash shortages or surpluses.

Static budget

A static budget is a budget that remains unchanged throughout a specific period. Unlike dynamic or flexible budgets, a static budget is set and fixed.

However, this doesn't mean it can be created, announced, and forgotten. Companies consistently refer back to their static budget to monitor variances between the budgeted amounts and actual spending.

Discover more about effectively managing static budgets in our blog.

Conclusion: How to make budgeting easier with FP&A software

Now that you’re familiar with all the budgeting terms, you can choose the method that best suits your company’s goals and objectives.

If you’re ready to take your budget to the next level, FP&A software can help. Streamline data entry with centralized calculations, automate recurring processes, and expedite report creation and distribution with a Financial Performance Platform like Prophix One.

Discover how to drive greater speed, accuracy, and agility in your budgeting process with Prophix One.