There are a vast number of resources available surrounding a “startup budget.” Many of these articles and guides are fantastic. (There are even several beneficial articles for creating a budget on this blog.) But the best budgets are only pieces of paper — if you don’t use them to better run your business.
A real key to financial health isn’t in having a report that lays out the next 12+ months, but in maintaining your key budgeted metrics throughout the year.
4 Tips for Maintaining Your Startup Budget and Key Business Metrics
1. Re-Evaluate at Regular Intervals
After the budget is created, you’ll likely get regular updates to see variances and where you stand for each category/line item. You probably glance at it and only take action if something seems “off.”
The first step toward maintaining and actually using a budget is to regularly interact with certain elements/expenses you track.
There are two basic ways to plan budget updates:
- Pre-scheduled: Once a month? Quarterly? It depends on your business and/or startup stage.(Probably good for startups, who are keen to make their cash runway last, to track monthly.)
- Attached to relevant events/meetings: There are regularly scheduled meetings with your team. You could attach the budget maintenance to a few of these. Or if there is a related, yet unscheduled “emergency” meeting. (e.g. Your lead developer unexpectedly leaves or the price of raw materials doubles in a month.)
Key takeaway: Be intentional and consider your budget to be a decision-making tool. This will virtually guarantee better maintenance.
2. Choose Key Performance Indicators (KPIs) that Drive Success
A budget likely involves a line-by-line projection of expenses for the coming year. And the thought of taking time each month (or quarter) to evaluate each and every expense probably feels like a waste of time. That’s because you shouldn’t (necessarily) do a deep dive into most items you’re tracking.
A few examples:
- If you maintain an inventory, it’s probably a good idea to regularly check how much you’re spending on raw materials and manufacturing costs more often than every year.
- Restaurants should compare food costs and possibly change up the menu if certain items become too expensive or more affordable.
- SaaS companies should regularly compare development/payroll costs to things like profitability, cash runway and churn to determine if the price for their software is where it should be.
If the economy or your market shifts, knowing which budget metrics drive your business speeds up the decision-making process, creating a faster pivot (should the need arise).
Key takeaway: Focus on the most important things that could actually change business practices. In most (if not all) cases, it’s not necessary to lay eyes on every paperclip receipt to see if your “miscellaneous” budget is where it should be.
3. Use Real-Time Data to Compare Startup Budget vs Actual
Accurately tracking any budget requires tech. With the advancements in cloud computing and financial software, it’s actually easy to see where you stand (budget-wise) in real time.
- So, you set a meeting to review the budget
- Pull up your budgeting software (or get the report from your CPA)
- Take a quick look at the overview to see any glaring variances from the budgeted numbers
- Then drill down into those key metrics that really impact the business
Key takeaway: Either use a quality budgeting software or work with an accounting service who provides regularly updated budget reports.
4. Use an Accounting Service
If you get an updated report that shows what you’ve actually spent, compared to what you’ve budgeted, you’re maintaining the budget. Founders and business owners who are on top of things will use this data to better guide their business.
But the act of tracking, updating and reconciling receipts (for you and the team) is an additional burden. A solution is to work with a quality accounting service who understands startups. And one that can:
- Create and maintain budgets, sending over regular reports
- Highlight key metrics to show potential areas of improvement
- Even offer advice, forecast cash flow and better track the overall financials of your business.
Founders CPA specializes in startup accounting. If you’d like to have a maintained budget that can be used to make better decisions, get in touch with us to schedule a consultation.