What is Fixed Budget?

A Fixed Budget, also known as a static budget, is a plan for how much money a business expects to spend and earn over a certain period. It is set at the start and doesn’t change, even if what actually happens is different from what was expected. This budget is based on guesses about future sales, costs, and other money matters. The main thing about a fixed budget is that it doesn’t adjust to changes. It stays the same no matter what happens in the business. It is mostly used to keep track of how well the business is doing compared to what was planned. By looking at the differences between the real results and the budget, businesses can see where they need to make changes.

Fixed Budgets work well for businesses that don’t expect much change in their operations or need a budgeting plan for just a short time. But in situations where things change a lot and businesses need to be able to react quickly, a flexible budget that can adjust as things change might be a better choice.

A budget acts like a financial roadmap for a set time, usually a year, guiding both businesses and individuals on how to best allocate their money based on expected earnings and spending. Within the world of budgeting, two main kinds stand out: Fixed Budgets and Flexible Budgets. Each serves its unique role, coming with its own set of pros and cons, making it important to know their differences for smarter financial decisions. The choice between a fixed and a flexible budget depends on the nature of the business, the predictability of the operating environment, and the specific management objectives. Fixed Budgets are more suited to stable environments with consistent production levels and costs while, flexible budgets are better for businesses facing fluctuating demand, variable costs, and the need to adapt quickly to changing circumstances.