4 Most Used Budgeting Methods for Businesses

A budget is a crucial planning tool for every business. It estimates your future expenses, revenue, and profits. It helps you better control spending and identify situations where revenue may not be sufficient to cover expenditures. Moreover, a budget allows you to realize potential growth opportunities when you may have extra cash available to invest in new ventures.

This article will look into four different budgeting methods used widely among businesses and help you find the one that best suits your current situation and type of organization.

4 Types of budgeting methods: Which one is right for your business? 

Below are the most common types of budgeting methods that you may want to consider for your business.

Budgeting method #1: Incremental budgeting 

One of the most popular approaches is incremental budgeting. There’s no fixed formula for incremental budgeting – you simply change last year’s budget by an increment or percentage to obtain this year’s budget figure. 

This method focuses on small changes from the actual or budgeted results from the preceding period. It’s perfect when your primary cost-driving factors don’t regularly change. Without the need for complex calculations, incremental budgeting is the quickest of all budgeting methods. However, be aware that your company’s departments may overspend to avoid receiving a smaller budget the following fiscal year. It’s best to look into specific expenditures and spending habits to prevent any kinds of budgetary slack. 

Best for: Those who are limited on time but need a method that is  effective and reasonable. It’s also well-suited if you have an established business with predictable and consistent cash flow and financial activities. 

See also: How To Create a Business Budget with 7 Steps.

Budgeting method #2: Activity-based budgeting (ABB)

Activity-based budgeting (ABB) is a budgeting method in which every activity that incurs costs is tracked and analyzed to identify areas for improved cost-saving. After figuring out how to enhance cost-efficiency, a business will create a budget based on those findings. Companies typically employ this budgeting method to cut expenses, boost productivity, gain a competitive advantage, and improve overall operations efficiency. Rather than just using the past budgets to determine a new budget like the incremental budgeting method, the ABB system digs deeper into the company’s performance.

The ABB system gives you more control over the budgeting process. Since the budget uses relatively precise data for the projections, it helps managers align the budget with overall company goals much easier. Due to its complexity, the ABB method is more expensive and time-consuming to implement and maintain.

Best for: New companies without historical budgeting data should consider this method. The ABB method is also popular in major industries, like manufacturing, construction, and healthcare. Companies that are going under significant changes, such as new subsidiaries, large clients, business locations, or products, are likely to use the ABB technique as well.  

Budgeting method #3: Value proposition budgeting (VPB) 

Value proposition budgeting (VPB), or priority-based budgeting, is all about driving value. With this method, you go through every cost item to decide whether the value it brings justifies its cost. This allows your business to focus on true value drivers while avoiding wasteful spending. One of the main downsides of the VPB method is that value is not easy to determine as it depends on multiple factors like politics or economic trends. If there isn’t a clear understanding of value, business owners may make short-term decisions that negatively influence long-term goals. 

When preparing for the VPB method, businesses have to answer these essential questions:

  • Why are we spending this amount of money?
  • What value does it bring to our customers and stakeholders? 
  • Does the value outweigh the cost? 

Best for: This method best suits companies aiming to reduce unnecessary expenses and refocus on creating what customers want most. Many government entities also favor this budgeting method because it involves a lot of financial restructuring throughout the year, and VPB can help them identify which services are most valuable and most needed within the community.

See also: Are You Maximizing Your Business Budget?

Budgeting method #4: Zero-based budgeting (ZBB)

Zero-based budgeting (ZBB) is another common budgeting method. When applying the ZBB method, you assume that all department budgets are zero and must be rebuilt from scratch. In other words, past budgets’ numbers are not considered. Budget planners must justify every penny spent. The ZBB method is very strict, attempting to eliminate any expenses that do not contribute to the company’s profit. It’s difficult and time-consuming to carry out a zero-based budget, so many companies only use this approach on occasion.

Best for: This extreme budgeting method is very useful when a business has an urgent need to reduce cost, for example, a financial restructuring.  

The bottom line 

Employing a suitable budgeting method for your business is an effective way to save costs, increase productivity, and bring in more profits. 

By understanding the basics of commonly-used budgeting methods among businesses, you can gain a deeper insight into your own business’s situation to improve your financial performance. 

In order to determine your ideal budgeting method, it’s important that you have accurately recorded expenses. In order to do so, you need to have your receipts organized and stored safely.  

Shoeboxed can help you. 

Shoeboxed is a well-trusted tool to help businesses, freelancers, and DIY accountants store and organize their receipts. It is a software program that quickly and efficiently digitizes your receipts and documents. This app automatically extracts, verifies, and categorizes important data from your receipts, then stores them securely in the cloud. Most importantly, scanned documents from Shoeboxed are accepted by the IRS


Go paperless with Shoeboxed for FREE today!

How To Send An Invoice Through Email

Every business wants to receive payments on time — who doesn’t? 

While the exact timing of payments depends on your customers, there are some things that you can do to accelerate this process. One of them is to send your invoice via email. 

Read on to find out the great benefits of email invoicing and get practical information on how to send an invoice through email. 

Why should you send invoices via email? 

There is a multitude of reasons why sending invoices via email is beneficial for your business: 

It saves you money

Many businesses opt to send their invoices the traditional way – by post. This comes with a number of incidental costs including delivery fees, stamp fees, stationary fees like paper, envelopes, and more. These expenses may seem relatively small at first, but they add up over the life of a business. 

With email invoicing, you can forget about all of the expenses. Simply attach your invoice to your email, and you’re good to go!

It also saves you time 

Posting your invoices is extremely time-consuming – you have to print the invoices, fill in the required delivery information, package them accordingly and make a trip to the mailbox. You then have to wait and from there it’s in the hands of the delivery company or postal service. Unless you pay for express delivery, delivery dates and times are rarely certain. That means there is no guarantee when your customer will receive their invoice, not to mention the risks of missing or damaged invoices during the process. Emailing invoices can prevent all of those problems. It offers peace of mind and lets you have more time to focus on activities that add core value to the business. 

It is easier to keep track

Sending invoices via email provides an easily accessible proof of delivery securely stored on your computer. Whenever you want to check, you can just go into your “Sent” folder to see the date and time that you sent your invoices. On top of that, you can also request a “delivery” receipt or “read” receipt before sending the email. That means you will get notified when your email has arrived in a client’s inbox and when your client opens it.

It helps you get paid faster

When you send invoice emails, you can technically receive your payments sooner. If your clients receive invoices earlier, they can start the payment process sooner, too. 

how to send an invoice through email

How to send an invoice through email?  

To send an invoice through email professionally, you should follow these three simple steps: 

  • Create a digital copy of your invoice
  • Attach your invoice to the email 
  • Write a formal invoicing email to your customers 

Let’s break them down and look at each step in detail as below:

Step 1: Create an invoice 

You can customize an invoice by yourself using free templates on the Internet. Here are some useful links that offer free invoicing templates:

You can also generate an invoice directly from your accounting or invoicing software if you use one.  

Make sure your invoices are clear, easy to read, and have all the important information like invoice number, vendor and client details, purchase order number, description of products or services, payment options, etc. 

Step 2: Attach your invoice  

Instead of pasting your invoice into the body of the email, attach it as a downloadable PDF file. This enables your clients to save, print, or upload your invoice to their accounting software. Plus, you will leave a professional and caring impression on your customers, which enhances your customer relationships. 

Step 3: Write an email 

Writing emails can be time-consuming, especially if you have a lot of customers to invoice. Using a template can cut down on the amount of time spent on every invoice. Below is an example of a basic template that you can use when sending invoices to your customers: 

Subject: Invoice [invoice number] for [product/service name] due [invoice due date]

Hi [Recipient’s name],

I hope you’re well. Please find the attached invoice [invoice number] for [product/service name], due on [invoice due date] below. Feel free to ask me if you have any questions.

Kind regards,

[Sender’s name]

How can Shoeboxed help you with email invoicing? 

Shoeboxed is a receipt scanner application that turns your document into digital in seconds. It is a well-trusted tool to help businesses, freelancers, and DIY accountants store and organize their receipts. Understanding the rising popularity of email invoicing, Shoeboxed offers some features associated with this process for users: 

Forward or send scanned receipts 

You can forward or send a digital receipt to any email address directly from the Shoeboxed app. This is helpful when you only have the paper copy of your receipts available. Plus, employees in your company can leverage this feature to send a quick expense report (with receipts attached) to you for reimbursement. It can help you avoid fraud and lost or damaged receipts.  

Automatically archive receipts from Gmail

Whenever you receive an invoice in your Gmail inbox, Shoeboxed automatically picks it out and submits it to your Shoeboxed software. Those receipts are then labeled “Sent to Shoeboxed” in your Gmail account. 

Next, Shoeboxed will process your receipts, extract, human-verify, and categorize important data from your receipts. With this feature, you no longer have to worry whether you miss any invoices swimming around in your Gmail inbox. 

Start going paperless today with Shoeboxed!

Want to read more about business? 

If you’re interested in entrepreneurship stories, business tips, or productivity tools, find more posts like this on the Shoeboxed Blog.

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What Are the Five Foundations of Personal Finance?

If you’re interested in learning about the five foundations of personal finance and how to manage your money correctly, you’ve come to the right place.

In this article, we’ll walk you through the five foundations of personal finance and a five-step plan to assist you in navigating your finance path, the fundamentals of managing money, and a bonus of a few solutions to keep things running smoothly and efficiently.

What is personal finance? 

Personal finance, in summary, is how you manage all of the income you make or get. 

Personal finance usually entails devising a strategy for allocating funds. You could divide your earnings into such categories: 

  • Income: All of the money you make or receive. Compensation and rewards, retirement, profits, and money received as gifts are all examples of income. 
  • Spending: Where did your money go? This category includes both needs like rent or mortgage payments and food, as well as non-essentials such as entertainment, activities, and whatever else you buy just because you want to. 
  • Saving: Do you have a large sum of money in your shoebox? You can also save money by putting your funds in a primary savings bank or making investment money market products. 
  • Investing: Equities, shares, and unit trust are joint holdings, like investments in real estate holdings or private enterprises.
  • Protection: Emergencies and unplanned situations should be planned for. This entails obtaining different types of insurance, such as health or insurance products. It could also entail planning for the future.

Five Foundations of Personal Finance 

A financial knowledge strategy is as individual as the person who creates it. There is no one-size-fits-all approach but a few recommendations to follow when you construct your own. Here are the five basic foundations of personal finance: 

Determine goals and priorities

To create a budget and begin your plan, first, you need to understand what you truly want from the near and distant future. 

Ask yourself the “big” questions like

  • What other finances do I desire? 
  • What kinds of things do I want to own? 
  • What kinds of experiences do I want to have? 
  • What is the state of my work, parents, and private life? 
  • What would I like to modify about my present situation?

By answering these questions, you’ll be able to determine your spending limit, and even adopt a long-term perspective rather than focusing just on covering this year’s budget expenses. 

Don’t be concerned if these questions are challenging or if you don’t know how to respond with certainty. The goal isn’t to schedule your entire life; instead, it’s to get you beginning to think about it so you can eventually build your roadmap. 

Remember that your financial planning blueprint should be as adaptable as your life. Maintain fluency and try to prevent “analysis paralysis,” which prevents you from ever initiating!

Assess current financial situation 

Before creating a personal finance strategy that understands your daily existence and needs and wants, you must first fully comprehend who you are. 

This begins with a simple examination of two factors: 

  • Income stream, also known as “money in vs. money out,” is the amount you earn and spend each month. 
  • Net worth is the amount of money and assets you currently own, less your incurred debts, such as outstanding credit card payments.

A simple — yet useful — practice to understand and control your financial situation is to keep track of your personal spending. For example, you can keep track of the receipts for your purchases to see how much you’ve spent each month. By collecting the receipts that you receive, storing them, and reviewing them on a regular basis, you’ll be aware of your spending habits, and can then adjust if needed. 

There are many ways to store receipts, however, we suggest digitizing your paper receipts with a receipt scanning app. And Shoeboxed can help you with just that! Shoeboxed is a receipt-tracking and expense-managing service for freelancers, sole proprietors, and small business owners. You can capture your receipts, and the app will automatically extract the key data, categorize and organize them, and even generate expense reports for you. You can clear your wallet, desk, and drawers from bunches of paper receipts while storing them safely for years! 

What’s more, Shoeboxed offers OCR (Optical Character Recognition) engine and human data verification features, ensuring that the digital versions of your receipts are scanned in precise format, well categorized, and contain human-verified information that is approved by both the Internal Revenue Service and the Canada Revenue Service. And last but not least, you can even track mileage for business and store business cards with the Shoeboxed app. Doesn’t it sound great to access all your important information with one touch? 

Pay-off debt 

If you already have borrowing (college tuition, credit card bills, etc.), make it a priority to pay it off as soon as possible. The faster you can pay off your debt, the less interest you’ll have to pay. That means you’ll be able to keep much more of your money over the long term.

It may be painful to look at the figures, but it is necessary for personal finance management. The earlier you can create and implement your strategy, the better off you’ll be compared to the financial circumstances you’ve been fantasizing about.

Set a budget

The most exciting thing that can be done in your financial health is creating and estimating costs. It ensures that you are functioning toward your objectives, and having a specific amount to comply with will help keeo you responsible every day, week, month, and year. 

Your spending plan should clearly present your income and unfunded liabilities. To achieve that, you can start by asking yourself such questions: 

  • Do your outgoings usually outweigh your inflows? If so, how much? 
  • Where might you start by cutting back on your spending? 
  • Is there a great bonus or another way to earn more money on either corner of the operating cash? 
  • What amount of money would you like to pay against your loans each month? 

Calculating a monthly spending limit will help you connect your income and expenditures– or widen the numbers so you can save even more money. 

You can create an Excel spreadsheet, note, or use a personal finance app/software to keep track of your assumed responsibility for each period.

Save money monthly 

Every brokerage will advise you to save for an urgent situation. This fund would cover nearly 4 to 6 months of your expenditures in a perfect scenario if you lost your job. 

If you have significant debt, saving money may seem impossible. That is understandable. 

However, you should indeed begin by having saved even just a tiny amount. Begin by putting $5 in your piggy financial institution or saving account on your banking app each week. Add “Savings” as a cost to your liquidity worksheet so that you can keep records of it. You can increase your savings amount to $10, then $20 each time, and so on.

If this sounds too difficult, you can start with considering what you thoroughly appreciate and what you can do without. Don’t abuse yourself – it’s essential to spend money on what makes you happy. 

Instead, you can determine which expenses you can conveniently reduce rather than become unhappy. For example: 

  • Cook more as food products are less expensive than eating out. 
  • Revoke or stop any club membership or subscriptions that you don’t need.
  • Take public transport or ride a bicycle rather than getting an Uber or driving your car. You’ll also benefit from some light exercises. 
  • Sell several items that you have bought but never used. We’ve all got a lot of those.

You might also be interested in: Amazing Ultimate Guide To Effective Family Finance Management.

The bottom line

Financial planning is not as relaxing as a walk in the park. However, the better you understand how everything works and incorporate that understanding from your objectives and condition, the more straightforward and more effortless it becomes. 

Starting from understanding and managing the five foundations of personal finance properly, you’ll be able to control and develop your financial plan and even take it to new heights. 
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