How Zero Based Budgeting works

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By taking a simple example, we can teach you, "How zero based budgeting works?" Suppose, you have small business. Your business's 2 weeks incomes is 1600 $. Now forget previous two months income. You just start to justify only $ 1600 with your two weeks estimated all expenses. In the end this 2 weeks period, you should have only zero dollar. You have started from previous 2 weeks as zero base in income and expenses and you reach your total estimated incomes also zero level by estimating any expenses of your business.

1st Step : Start to Making Base As Current Period Estimated Incomes

First of all, you have to make the base of current period estimated incomes for understanding the work of zero based budget. In above example, we have estimated $ 1600 as our current two weeks incomes.

2nd Step : Estimate Your All Operating Expenses

In our small business, for example, we have estimated for two weeks.

Expenses	One Month in $	2 weeks in $
Rent	700	350
Utilities	200	100
Fuel	100	50
Charity	40	20
Festival expenses	100	50
Expenses for employees' Training	40	20
Expenses for employees' entertainments	40	20
Salaries	60	30
Refreshment	400	200
Total	1680	840

3rd Step : Estimate Your All Financial Expenses

For promoting business, you need debt. For debt, you have to pay its installments. This is compulsory payments. Following may be our business.

Financial Expenses Estimation
Debt	Total Taken	2 Weeks Installment
	( In $ )	(In $ )
Car loan	4000	130
Business loan	95000	80
credit card - 1	3000	30
credit card -2	2000	20
Total	104000	260

4th Step : Deduct All the Expenses From Your Estimated Income For Making Estimating Incomes as Zero

If your estimating is more than your estimating incomes, you have to decrease your expenses. If you income is more than your estimated expenses. Again see the expenses list, you can add more expenses. You can pay more installments or you can save. With this, your estimating incomes will go to zero. So, every period, your budget will start from zero expenses and end of your period, your all estimated incomes will reach at zero. So, such a way, zero based budget works.

You can see it in screenshot also.