Static budgets are based on information previously gathered using past sales and revenue numbers. This translates to increased decision-making power for the owner, improved flexibility, and better potential to overcome external factors affecting the business. Once the budget is set, it is rarely changed because there is no need to change it. Naturally, this means that a static budget is a more careful type of budget. It is adopted in areas where few changes in the quantity are expected. For example, a certain expense may be set at a particular amount and would never be changed regardless of any changes in volume.Static budgets are great for companies that have slow-paced operations. Static budgets are indifferent to volume or any other factor that may vary during the budgetary period.
There are two kinds of budgets, static and forecasted. The Pros and Cons of Static and Forecast budgets Budgets are tools to achieve a structured direction and thus are quite necessary for any ambitious business. It provides direction to the organization and acts as a rudder that keeps the company in line with its goals. By allocating certain amounts to a particular area, management can support their strategic decisions upcoming. Preparing a comprehensive budget makes this possible.Budgets don’t just provide a birds-eye view, but they are also a way to show management’s intentions for the future. Many firms like to have a step-by-step, item-by-item review and analyses of sales, expenses, wages among many other items. Forecasting cash flows, bad debts and receivables cycles all require proactive action on the part of the management.The sole purpose of having a detailed budget for your business is that it allows for business owners to have a detailed view of the company’s finances and current state. Decisions need to be made in a split second and with technological advances, the time and the window for error have both reduced drastically.So what should businesses do in this environment, especially when there are so many uncertainties and factors to consider? The answer is simple, forecast budgeting! Forecasting allows companies, like yours, to channel your psychic abilities and try to predict the future, anticipate changes, prepare for different scenarios and try their absolute best to ensure as much accuracy as possible in planning cash flow management.Businesses today need to know where the money is coming from, going and if they'll have it in a few days or a few months. Let's face it the modern business world is a never ending maze compromised of internal and external factors.