What is a Flexible Budget? – Definition, Variance, Example & Advantages

A Flexible Budget can also be referred to a non-particular financial plan that might vary accordingly with the corporation’s needs. The term flexible budget can be hinted towards the whole organization or just a randomly selected department in it. The constructions of the plans that are related to the company’s Budget are deliberately made flexible. It is done, so that company’s needs are not kept at rest.

On the contrary to Flexible Budget, Static Budget is considered inferior, when they are compared. Its because there is no change in budget amount, even if there is considerable activity in the department or the company.

Flexible Budgets make it quite easy to calculate the expenditures based on different aspects of the company. There is a lot of different level of the company which has variable expenditure costs. A Flexible Budget makes it easy to calculate the company’s revenue, based upon its experiences on several activity levels. The resultant Budget that is prepared varies with the activity levels that it has experienced.

Does a Flexible Budget Make Sense?

Having a planned, flexible budget can ease things out for any company or department. Going by the idea of flexibility and common sense, a lot of revenue could be saved utilized in a better way. For a simplistic example, if the usage of machines per hour is increased for a certain period, then consequently, the Budget has to improve. If for some reason, the usage of the devices is minimized for a certain period, then the Budget shall be rectified so that revenue is not wasted unnecessarily.

If this sort of controlled Budget is not benefiting the company, then what is?

What are the Advantages of Flexible Budgeting?

Flexible Budgeting can be beneficial in several ways, such as:

• Reducing the chances of unexpected problems and taking advantage of opportunities. Being dedicated to a manageable budget might also prevent overspending of revenue. This revenue could be utilized for other productive aspects of the company.
• While Static budgets are based upon historical events which tend to shape the market, its competitor Flexible Budgeting is based upon the needs of the company, the resources found upon the probable business operations and the possible outputs from the production procedure.
• As a Flexible Budget is prone to changes, whenever there is a need for major or minor modifications, this Budget can be updated by the available new data. This provides the company an upper hand in making the right decisions in the most crucial times. This is how business is adjusted by a few changes in the revenue distribution pattern.
• One of the essential aspects of being dedicated to a Flexible Budget is the ability to analyze the company’s performance. The manager can assess the company’s representation and predict the results of financial outcomes on several accounts, known as activity levels. If the overall performance of the company has drifted away from its goal, the manager can control cost. This is done to ensure the security of the department’s vision.

Disadvantages of Flexible Budgeting:

While the advantages of flexible Budgeting are many, however, if not perceived and executed correctly, these ideas would not sustain. The first losses of revenue and the importance of this subject might be running in losses too. The main disadvantages could be the following listed below:

• It might take up some time to study and examine the variable costs incurs. During a generic budget season, the time factor might play a significant role to decide the areas that need variation in budget revenue. This would nullify the idea of having a Flexible Budget in the first place.
• Sometimes, the farsightedness of probable flexible expenses might be very tough. Therefore, the value of a budget of such kind is lowered. The fixed-budget plans need to have a proper insight into the contents, namely the size for the corresponding bulk purchases and the discounts on them. To carry out such a task is easier said than done.
• The owners of small-sized business might be hooked up with a fixed valued budget plan, which is adjusted with some minor variable costs. This compels the company’s leadership to think about the time that is being invested. With the appropriate concerns and discussions with the head accountant, there is a good chance for the Budget to be stabilized.

Examples of Some Flexible Budget:

For a sustainable and flexible budget that ensures good returns, planning is of a very high priority. Some examples of Flexible Budgeting are:

Long-Term Budgeting

A long term budgeting can be fulfilled by a company when they try to make a bright contrast. For example, a company may work on a fixed budget that will show the spending and earnings along with its total equity, for over a specified period. For a better impact, a company has worked out a detailed and flexible budget that reflects its performance for a tenure of five years, say. Here the stakeholders would have a clear view of the claims made by the company, its performed over the years while being dedicated to a Flexible Budget. The contrast would also allow the clients to view the detailed performance of the company if they had gone with Static form of Budget. The difference in production and success will stand for the company’s standards.

Conclusion:

After a lengthy discussion about the Flexible Budget program. It must have cleared most of the conceivable doubts. To summarise this aspect and to make sure that there are no errors in compiling a plan like this, keep a check on these outlines for assistance:

Getting help from the computers are of vast essentiality. The preparation of Budget and the changes/alterations are very quickly resolved by computer work. Companies from all over the world save hundreds of thousands of USD when it comes to accounting time, as they rely on a good computer to prepare their business budget.

Starting a plan in correspondence to the Flexible Budget might sound very intimidating at first. For small and new business companies, this might look very risky in terms of short-term losses, as well, but this is a long way approach to sustain your business.

Cutting revenue from where it is not required and utilizing it in a sector where development is being craved will bear you fruit in the future.

However, the execution and plan to carry out a dedicated Flexible Budget might need quite a lot of examining and attention too. Otherwise, the whole purpose of such a budget will be defeated. This might leave you with yet another failed budget module.