Accounting Best Practices, Fifth Edition

5–13. Use Flex Budgeting

Perhaps the single most tedious part of updating a budget is altering the myriad expense line items every time someone makes a change to the estimated revenue level. Revenue is far and away the most commonly tweaked number in a budget, so the underlying expenses have to be recast to be in proportion to the changed revenue levels a multitude of times. This is a major chore not only for the accounting staff maintaining the budget, but also for those managers who must be contacted about changes to the expense levels they had previously authorized.

A recasting of the budget model will largely eliminate this problem. Instead of making changes to the expense line item for every expense in the budget, it is much easier to set up each one as either a flexible expense account or one that is fixed within a broad range of revenue levels. If it is fixed, there is no need for change, unless there is an enormous alteration in budgeted revenue levels. However, many other expenses will vary directly with revenue; in these cases, it is possible to revise the budget formulas so that they are listed as percentages of the monthly revenue level. By making these formula alterations, it becomes an easy matter to adjust revenue and see a swath of expense changes ripple through the budget model—with no manual intervention whatsoever. This best practice can reduce budget maintenance work to a fraction of the amount formerly needed.

Though the flex budget discussion has centered ...