9.20: Alternative Budget Periods
Learning Outcomes
- Differentiate between alternative budget periods
The year has come to a close and you are sitting at your desk evaluating the budget for your business. Although how you prepared the budget seemed to make sense at the beginning of the year, you are now seeing some things that could have been done better, or improved by working ahead on your budget, so you didn’t feel like you are starting from scratch. Also, since you run a school aged child care program, it really makes more sense to budget from May to April, rather than January to December, but you aren’t sure if it is ok to budget that way. The standard quarterly budget doesn’t seem to fit your needs, but what can you do? Well, let’s examine some ideas for budgeting that may be a better fit for you!
There are various ways to set up a budget and to choose a budget period. First and foremost, set a budget period that works for your business! The two primary budget periods you will see are:
- One Year budgets. Most companies prepare a one year budget, that is divided into quarters and then months. Depending on the fiscal year of the company the quarters may vary, but in a standard calendar year company, January–March, April–June, July–September, and October–December would be the four quarters. Many companies budget by month, some even by week or day! This will depend on the size of the company.
- Continuous budget (also called a perpetual budget). This kind of budget will continually add on to the end of the period, with a perpetual 12-month budget. So, as an example, at the close of a month or a quarter, the next month or quarter is added on. The advantage to this type of budget, is that managers always have a year in front of them, regardless of when they are looking at the budget. This helps with long term planning for managers, as they don’t have a narrow, short term goal, but can see into future periods.
When setting up a budget for your company or department, make sure to check to see what the company prefers, or currently uses. It is also important in smaller companies to decide on a budget period that makes sense from a business standpoint. An example might be a school, where most of the expenses are incurred from August to May. In this case, having a budget that covers the school year may be much more important than having a calendar year budget. Different businesses will work best with different budgeting periods.
Practice Questions