{"id":3563,"date":"2023-01-20T21:13:29","date_gmt":"2023-01-21T02:13:29","guid":{"rendered":"https:\/\/www.northone.com\/blog\/?p=3563"},"modified":"2023-05-16T15:01:01","modified_gmt":"2023-05-16T20:01:01","slug":"activity-based-budgeting","status":"publish","type":"post","link":"https:\/\/www.northone.com\/blog\/accounting\/activity-based-budgeting","title":{"rendered":"What is Activity-Based Budgeting? Definition and Guide"},"content":{"rendered":"\n

If you\u2019re looking for a budgeting system to implement in your small business, activity-based budgeting is worthy of consideration\u2014especially if you\u2019re looking to cut costs in your operation. Not only does having a clear budget help you keep your operation running, it also allows you to identify supply chain problems in need of resolution. Perhaps most important of all, a budget helps you determine whether or not you\u2019re on target to meet your goals\u2014and if not, where you\u2019re coming up short.<\/p>\n\n\n\n

In this article, we\u2019ll explain exactly what activity-based budgeting is, how the method works, and why you may want to consider using it for your business.<\/p>\n\n\n\n

<\/span>What is activity-based budgeting<\/span><\/h2>\n\n\n\n

Much like traditional budgeting, activity-based budgeting is a process by which you identify, analyze, and research your business\u2019s key expenses and activities, then use that information to produce the budget. Where it differs from more traditional budgeting, however, is that instead of relying on prior-year values to set a forward-looking budget, an activity-based approach identifies cost drivers and accounts for them accordingly.<\/p>\n\n\n\n

For example, instead of simply increasing your marketing department\u2019s budget by 3% next year, activity-based budgeting breaks down the expenses associated with marketing for the year ahead and accounts for their anticipated costs in the upcoming year.<\/p>\n\n\n\n

If you\u2019re a business owner who feels overwhelmed by your expenses, or struggles each month to understand where your money went, this approach could be useful. Since you\u2019re essentially trimming all the fat until only the most essential line items in your budget remain, you\u2019re sure to save money with activity-based budgeting.<\/p>\n\n\n\n

This approach to budgeting is rigorous and intense\u2014if you\u2019ve been working with a more lenient, traditional budget, you may find this approach difficult to adjust to at first. But if you need a whole new method to budgeting to start growing your accounts, the initial struggle could be worth it.<\/p>\n\n\n\n

<\/span>How activity-based budgeting works<\/span><\/h2>\n\n\n\n

Here\u2019s how you would go about establishing and maintaining an activity-based budget for your own business:<\/p>\n\n\n\n