Glossary
Budget & Forecasting

Zero-Based Budget

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

A zero-based budget requires assigning every dollar of income to a specific purpose, so that income minus expenses equals zero each period.
A zero-based budget is a budgeting approach where every dollar of income is assigned a specific purpose for the upcoming period, so that income minus planned expenses equals zero. Unlike traditional budgeting, which often builds on previous years’ budgets, zero-based budgeting starts from scratch each period. Every expense must be justified and allocated intentionally, ensuring that all funds are accounted for and aligned with organizational priorities. This method can help nonprofits maximize their resources, increase accountability, and eliminate unnecessary spending. Zero-based budgeting encourages detailed planning and provides a clear financial roadmap, which is particularly useful for organizations with fluctuating funding or changing program needs.

Key Takeaways

  • Ensures all income is intentionally allocated
  • Requires justification for every expense
  • Increases transparency and accountability
  • Helps prevent overspending or unassigned funds

Why It Matters

It ensures every dollar is purposefully allocated, maximizing transparency and resource efficiency.

Real World Example

A small nonprofit, Hope for All, receives $50,000 in annual donations. Using a zero-based budget, they assign every dollar to specific categories: $20,000 for program services, $15,000 for staff salaries, $5,000 for fundraising, $5,000 for administrative costs, and $5,000 for reserve funding. Each expense is justified based on current goals and needs, rather than relying on last year’s spending patterns. At the end of the budgeting process, all $50,000 is allocated, ensuring nothing is left unplanned and providing clear guidance for spending throughout the year.

How Aplos Helps

In Aplos, you can easily create and manage a zero-based budget by assigning every dollar of expected income to specific categories and expenses. Aplos’s budgeting tools allow nonprofits to track actuals against their zero-based plans, adjust allocations as needed, and maintain up-to-date visibility into financial health.
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Frequently Asked Questions

What is a zero-based budget?

A zero-based budget is a method where every dollar of expected income is assigned to a specific expense or purpose, so that all funds are allocated and nothing is left unassigned.

How is zero-based budgeting different from traditional budgeting?

Unlike traditional budgeting, which often uses previous budgets as a starting point, zero-based budgeting starts from scratch each period and requires you to justify every expense.

Can zero-based budgeting be used by nonprofits?

Yes, zero-based budgeting is particularly effective for nonprofits, as it ensures all resources are directed toward mission-critical activities and increases financial accountability.

Related Terms

Audit Trail
Mission Trip Fund
Fund Closeout
Expense Reimbursement
State Unemployment Tax
Form 1023-EZ

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