What is Zero-Based Budgeting?

Zero-Based Budgeting is a method of budgeting in which all expenses must be justified for each new period. Every function within an organization is analyzed for its needs and costs from a "zero base," meaning the budget starts from scratch each cycle, rather than being based on the previous period's budget.

For Startups: While more time-consuming, this approach can be highly effective for startups looking to maintain strict financial discipline and optimize resource allocation. It forces founders to critically evaluate every single expense and justify its contribution to the company's goals. This can help identify and eliminate wasteful spending and ensure that capital is directed only towards the highest-impact activities.

Example: Instead of just giving the marketing team a 10% increase over last year's budget, a zero-based approach would require the team to build a new budget from the ground up, justifying every proposed campaign and its expected ROI.