Line-by-line budgeting, also known as line-item budgeting, is a traditional form of budgeting commonly used in both business and government. In this approach, the budget is structured as a list of individual items or lines, with each line representing a specific expenditure category. Here’s a detailed overview:

Key Features of Line-by-Line Budgeting

• Detailed Itemisation: Each expense is listed separately, often with historical data for comparison. This can include salaries, utilities, supplies, marketing costs, etc.
• Category-Based: Expenses are typically categorised based on their nature or department (e.g., HR, operations, marketing).
• Fixed Allocations: Each line item is assigned a fixed amount of money for a given period (usually a fiscal year).

Advantages

• Simplicity and Clarity: Easy to understand and straightforward to implement, making it accessible for small businesses and large organisations alike.
• Control Over Spending: Helps in closely monitoring and controlling expenditures by providing a clear picture of where funds are allocated.
• Comparative Analysis: Enables easy comparison of expenses over different periods, aiding in identifying trends and making adjustments.

Disadvantages

• Inflexibility: Can be rigid, making it difficult to shift funds between categories in response to changing circumstances.
• Encourages Expenditure: Departments may be incentivised to spend their entire budget to avoid budget cuts in the next period, even if not necessary.
• Lacks Strategic Focus: Focuses on cost control rather than the strategic alignment of resources with organisational goals.

Application in Business

• Budget Preparation: Involves reviewing each line item, often starting with the previous year’s figures and adjusting for anticipated changes.
• Expenditure Monitoring: Regularly comparing actual spending against budgeted amounts for each line item.
• Budget Revision: Making adjustments during the budget period if necessary, which may require approval depending on the organisation’s policies.

Best Practices

• Regular Review: Regularly review and update line items to reflect current business needs and market conditions.
• Balancing: Balance line-by-line budgeting with other approaches that focus on outcomes or performance to ensure strategic alignment.
• Employee Involvement: Involve various departments in the budgeting process to gain a more comprehensive understanding of needs and constraints.

Line-by-line budgeting is a fundamental, widely-used approach that offers clear visibility into an organisation’s spending. While it is excellent for tracking and controlling expenses, it should be complemented with more flexible and strategic budgeting methods to effectively support the overall goals and dynamic needs of a business.