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Financing Why your startup needs a budget

You’re a cool startup. You’re moving fast and pivoting as needed. Nothing is written in stone and your team is small enough that you can change direction quickly. What do you need a budget for? Budgets are for big companies with accounting departments and corporate cost codes, not startups, right?

Wrong.

Think of your tech startup budget as your growth strategy

Startups need one of those. Your startup is hopefully producing revenue and might even be making enough money that you can start spending on things like other team members to help your business grow. You need a plan to know which people to hire, and when and how new hires will affect your revenue and expenses. This is your budget, aka growth strategy plan, aka you need this!

You also need a flexible startup budget template

Budgeting is hard, and your growth plan needs to be simple and flexible. There are distinct benefits to using a spreadsheet template:

  1. It enables you to easily experiment with different strategies by simply changing numbers
  2. You can experiment with faster versus slower growth by testing what the outcome will be if you spend more or less
  3. It provides an easy way to communicate your growth strategy to your co-founders and investors (to get their feedback)
  4. It helps you determine when additional funding may be required
  5. You can plug in actual numbers as time passes to see if your strategy is working

 

DOWNLOAD OUR TECH STARTUP BUDGET TEMPLATE HERE

LogicBoost has created a budget template specifically for tech startups – our specialty.
We deliberately keep it to a single sheet for simplicity and avoid complex formulas. Feel free to customize it to your liking!

Your business budget format – keep things simple.

The most important financial documents for your startup are your Balance Sheet and your Profit & Loss statement. Get these monthly from your bookkeeper and review them in your monthly board meeting. Your budget should roughly follow the format of your Profit & Less statement but be projections instead of actuals. At a high level, you want to see how your revenue grows compared to your expenses.

In a B2B SaaS startup, your revenue section should track:

  • New business
  • Upsell of existing business
  • Renewal of existing business

Your expenses should be detailed on the number of hires around:

  • Salespeople – to drive new business
  • Marketing people – to drive inbound leads
  • Research and Development (R&D engineers – to fix bugs and add enhancements to the product)
  • Customer success managers to onboard customers and keep them happy for upsell and retention

 

You probably require less granularity over fixes costs like founders’ salaries and General and Administrative (G&A) expense. But you do need to see the bottom line each month showing the profit or loss, and also the cash on hand. Remember cash is oxygen for your tech startup – without cash your startup dies.

The purpose of using a startup budget template is to experiment with your budget by changing your hires to see how you expect it to affect revenue growth. Then, compare that to the cost of those hires, your profitability and how it impacts your cash on hand.

How do I determine how many employees I will need to hire?

It’s not easy, and the answer will be different depending on your needs, dreams, and financial resources. And that’s where the flexibility of your budget template comes into play.

These are the typical questions you must ask:

  • What will my close rate be on inbound leads and then demos?
  • What will my average selling price be?
  • How many deals can a salesperson handle?
  • How many customers can a customer success manager handle?
  • How many engineers do I need to add per 50 new customers?

If you’re lucky, you already know the exact answer to some of the questions, but there’s a good chance you’ll be making some educated guesses, seeing how they affect your budget, and revising them.

Do I have to stick to the business budget?

Not really. It is mostly a planning tool. You will learn things over time and the budget plan will change. Perhaps you realize that your inbound marketing is not as effective as you anticipated, and you need to spend more money on outbound efforts. This will change your hiring plans and you will have to adapt your budget. This is where you’ll be glad you used a template.

Improving your budgeting skills will pay off over time. The budget will become more important to the business as you slowly build entire departments, and management expands. Your budgeting muscle is a good one to start exercising!

My story: Budgeting gets more sophisticated as your startup grows, and ultimately becomes critical to your success. In my Cybersecurity Startup things got quite scary with the budget. My revenue was around $6M per year at one point, with a marketing budget of $2M per year. But the marketing spend would often be for marketing events that had to be paid one year in advance, and we could expect to see sales from the events only about 6 months after the event! Also, our accounts receivable (AR) was getting bigger and taxes were due on profits – even if we hadn’t been paid yet. Managing the budget became a challenge as so much cash was going out the door for the future, yet we still had to meet payroll each month. So, start learning how to budget today!

Tip: A Profit & Loss statement has all the accounting rigor and discipline. This means it’s long and complex with lots of categories. Feel free to summarize your budget into high-level categories that are more useful to you. Also, pass the feedback to your accountant so that your books reflect more of how you view the business. They will probably be only too happy to help with your budget going forward. Accountants love that stuff!

If you haven’t already, download our Tech Startup Budget Template here. It’s free!

 

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