Volatile market conditions in 2025 demand a disciplined approach to financial planning, making zero-based budgeting a compelling strategy for modern finance teams. 91% of companies meet or exceed their financial targets using zero-based budgeting, with savings reaching up to $1 billion for large corporations.

Companies are having to embrace cost-conscious policies focused on extending runway and driving operational efficiencies. In fact, in 2025, business leaders are focused on coordinating where resources will be spent even before allocating a budget.

Companies seem to be afraid of cost management strategies, but this shouldn't be the case. On the contrary, finance leaders often find that budgeting strategies can support the main strategic goals within a business.

Finance leaders often find the planning process is an opportunity to effectively scale the business, rather than a hindrance.

Accuracy is performance's greatest ally, and although it can be time-consuming, finance leaders often choose a bottom-up methodology suited to best prepare for volatility and uncertainty: zero-based budgeting.

If you've ever wondered what a zero-based budgeting method is, this approach focuses on building the budget from the ground up, ensuring that every expense has a clear purpose.

What is Zero-Based Budgeting?

A zero based budget is a strategic finance approach to corporate budgeting, in which every single resource is thoughtfully distributed to maximize its impact. Ultimately, what makes a budget a zero based budget is the practice of justifying each cost from scratch, rather than carrying over historical expenses.

In practice, it revolves around starting each budgeting period as a clean slate – i.e., a base of zero – upon which only necessary cost items are added. This 0 based budget approach ensures FP&A teams and budget owners the ability to break free from their status quo, and make conscious decisions about their operating expenses, rather than falling into the old habit of “it was this much last quarter, so it should be similar next quarter”.

Determining whether zero-based budgeting is the right fit for your organization largely depends on your company's culture, resources, and appetite for in-depth financial analysis.

Teams that thrive on transparency and cross-functional collaboration often find that ZBB encourages accountability and allocates funds to the highest-value initiatives. However, organizations with limited capacity or those resistant to change may face challenges implementing this method effectively.

In fact, cultural resistance affects 67% of organizations implementing zero-based budgeting, making it the primary challenge to successful implementation.

Zero based budgeting example

One of the most common real-world scenarios for zero based budgeting can be found within a marketing department. Rather than rolling over last quarter’s costs, the team starts with a 0 based budget and justifies each channel or campaign expenditure from scratch.

This thorough approach ensures that only the most effective strategies are approved, leading to higher ROI and a more strategic allocation of resources overall.

Is zero-based budgeting right for you?

Determining whether zero-based budgeting is the right fit for your organization largely depends on your company's culture, resources, and appetite for in-depth financial analysis. Teams that thrive on transparency and cross-functional collaboration often find that ZBB encourages accountability and allocates funds to the highest-value initiatives.

However, organizations with limited capacity or those resistant to change may face challenges implementing this method effectively.

How is Zero-based Budgeting Different from Other Budgeting Methods?

As its name indicates, ZBB provides leaders with a time-agnostic view of their company's budget, and the different types of costs, irrespective of previous periods. This is a key differentiator between ZBB and other budgeting techniques that enables key decision-makers to focus on looking forwards, rather than backwards.

Further, this process demands exhaustive analysis, evaluation, and cost discipline to determine the need and efficacy of any potential operational expense. This zero-based budgeting approach forces budget owners to systematically evaluate each line item to ensure alignment with the company's strategic goals.

Such thorough cost assessment entails that each expense (e.g. indirect costs, direct costs, administrative costs) is aligned with your governance policies and that it's strictly a necessity in pushing your company forward efficiently (e.g. accomplishing financial goals). No cost should slip through the cracks unjustified.

Additionally, through the implementation of this methodology, finance leaders can encourage healthy strategic discussions around the need for certain costs between various stakeholders, all of whom should have a voice in the decision-making process.

By facilitating these discussions, teams are able to maintain a better handle over how funds get spent – for example:

“Could we live without these specific expenses and instead have that cash available for another investment opportunity?”

Pros and Cons of Zero-Based Budgeting

The Pros of Zero-Based Budgeting

The question that now remains is: which is the better methodology for financial planning?

Expectedly, there's no easy answer, but there's no denying the value that this framework can potentially bring to companies that are willing to take more active ownership of their expenses and the planning of their annual budgets.

Further, since the success of this budgeting practice hinges on the participation of different budget owners and stakeholders, it implicitly encourages teamwork and communication among individuals within your business. This fosters critical thinking about the company’s strategic objectives and the cost structure that supports them.

Finally, ZBB's time-agnostic approach allows decision makers to eliminate historical bias from their budgeting equation. This helps them focus future planning on the company's growth requirements, rather than simply taking a historical figure that may be contextually irrelevant and applying a growth rate to it.

The Cons of Zero-Based Budgeting

That said, these benefits come at a cost that may be too steep for some to pay, specifically in terms of time.

A zero-based budget can take a long time to execute if it's not aided by the right tools, and if stakeholders are resistant to change and not fully bought-in to employing new methodologies. The latter is a key reason this budgeting system tends to work best in dynamic, agile environments.

Furthermore, since this budgeting method is primarily focused on the present and short-term future, if it's not executed carefully, it can result in a loss of long-term strategic vision. It's a potential case of not seeing the forest for the trees.

As such, it's safe to conclude that ZBB is an undeniably powerful tool in any growing organization – but it must be implemented thoughtfully, and without losing sight of the fact that it should be a tool to help you enable your long-term goals, rather than dictate them.

Why is Zero-Based Budgeting Relevant Now?

Between inflation and multiple ongoing banking crises affecting companies of all sizes across the globe, organizations often find themselves once again at a point where investors are less willing to part with their funds, and potential clients are less willing to invest in new products and services.

As a result, the present moment is an ideal time to reevaluate how organizations think about expenses, and how they can tighten their belts without stifling business goals. This is exactly the opportunity that this budgeting practice can provide.

By undergoing the exercise of building expenses up from 0, companies unlock the ability to ensure each Dollar, Euro, or Pound is put to good use. Nothing is overlooked due to the ease of hitting ctrl+R on a spreadsheet budget.

The ramifications are tremendous: minimizing unnecessary expenses can mean a longer runway, a new key investment to help generate further ARR, and the ability to catch operational costs before they cause irreparable damage to finances or the company.

Learn more: Listen to Julio Martinez break down how ZBB can drive efficient growth

Best Practices for Implementing a Zero-Based Budget

Implementing ZBB within your organization isn't an exact science. Each company has its own unique situation, and any solution must be adapted specifically for that context. However, finance leaders have identified some guidelines that can serve as a basis for a strategic approach to employing this at your company.

Define Objectives and Owners

First of all, it's important to agree on the objectives when implementing this methodology and how responsibilities and roles will be distributed throughout teams. Specifically, who will own the budgeting exercise, and do they have the resources needed to run the project efficiently and effectively?

Analyze Costs by Department or Function

It's necessary to define the level of detail to break down cost data, always based on a comparative market analysis and the internal needs of the company. It's useful to answer questions like: does it make the most sense to analyze expenses by department, by country, or by business line?

Align Budget with Strategic Priorities

Once a specific level of granularity has been agreed upon, the process of listing necessary expenses can begin, starting from zero. It's often helpful to aim not to surpass expected monthly income, as this encourages maximized cost-efficiency and eliminates unnecessary expenses or vendor subscriptions.

By keeping these targets in mind, cost discipline is reinforced, and teams are nudged to only approve essential expenses. This also opens up greater opportunities for reinvesting resources into projects that align more closely with strategic goals.

Finally, it's time to put these learnings into action. CFOs can empower decision makers to cut unnecessary expenses, benefit from cost savings, and reinvest any unlocked capital in high-priority initiatives.

This is the most vital part of the process, and often the most difficult to execute due to inertia. Leading organizations ensure success by giving budget owners executive support and authority over their domains so they can drive meaningful change.

Using an FP&A Solution to Gain Full Control Over Your Budgeting Process

FP&A software can act as the perfect conduit to allow for a shift to different types of budget processes, such as the one discussed in this article.

Specifically with Abacum, the software does the heavy lifting with regards to consolidating data from various business systems (e.g. ERP, CRM, HRIS), demonstrating quick time-to-value, and acting as a planning tool accessible to the entire organization, not just the FP&A team.

Single source of truth

In terms of centralizing your financial and operational data along with your forward-looking inputs and assumptions, Abacum has no equal. Thanks to its extensive range of accepted integrations, this is a platform on which you can collect a wider range of historical data than anywhere else, all synched directly from their source automatically, making it easier than ever to gather insights and combine them with future assumptions from all of your budget owners within the same platform. 

Of course, data remains permission-locked, so you can guarantee that decision makers only see the information they need to plan for the future.

Constructive, not destructive

The market provides a large number of platforms whose learning curve becomes an impossible wall to climb, creating a source of frustration for your team, rather than a value-add. Abacum is intuitive and easy to learn, with an implementation that is guided by our in-house team of FP&A experts who will provide a faster tangible return on investment than any other tool available.

Accessible to all

It is absolutely everyone’s job to make the reallocation of resources a success. One of Abacum’s competitive edges is its accessibility, making financial planning a process that the entire organization can participate in – not just the FP&A spreadsheet wizards.

Conclusion

As much as the past serves to better prepare for the future, it's not a guideline for the future. Each context has its own reality, and every new budgeting period should be treated as a new beginning. Once organizations adjust their lens to see it that way, they'll realize the importance of removing historicals from the equation and making decisions in the present based on what's relevant for the future.

As has been discussed, taking a more proactive stance on resource allocation can yield massive tangible benefits for sustainable ARR expansion and runway longevity. When implemented correctly, ZBB can be more effective than traditional cost-cutting methods because of its emphasis on choosing needs over nice-to-haves.

Additionally, it's a reality that in 2025 it's no longer possible to grow at all costs. Taking advantage of the leverage offered by an FP&A tool, rather than financial leverage, is an exceedingly prudent step to take.

The implementation of a cost management policy is indispensable for all businesses that want to stay afloat in the current market reality and maintain competitiveness, regardless of the north star metrics they choose. The road to profitability has always been a long-distance race where organizations must seize opportunities when conditions are favorable and seek shelter when they're not.