• April 15, 2016

Why Startups Should Budget Early and Budget Often

Why Startups Should Budget Early and Budget Often

This blog was contributed to VentureApp by Michael Burdick, the founder & CEO of Paro, a company that offers a network of financial experts to give startups affordable solutions & intelligent insights for a smarter, better way to manage their business. 

Like doing taxes, updating your budget is one of those things that’s often put off until tomorrow. Let’s be real, number crunching is time consuming and boring; plus, time spent planning is time lost serving your customers and chasing down leads.

However, maintaining and forecasting your budget is actually one of the best ways to spend your time. According to a study by Stanford’s Graduate School of Business, young firms that quickly instituted formal financial mechanisms (like cash budgeting) grew faster and had higher revenue than their less structured competitors.

As a business owner, we understand that you’re already wearing multiple hats, but here are some reasons why you should keep your budgeting cap on a while longer:

Good Budgeting Leads to Good Decisions
When it comes to making decisions for your business, you’ll want to sound like Sherlock Holmes: “Data! Data! Data!…I can’t make bricks without clay.”

For your business, the bricks are often capital expenditures or new hiring decisions. The clay is your budgeting. One way frequent updates to your budget can inform decisions is through pattern recognition. For example, if you are updating your financials on a monthly basis, you may find that your business may have unexpected seasonality. With this knowledge, you could pinpoint when you may have a surplus of cash and time purchases more effectively.

Undoubtedly, you are under pressure to grow the business. Seeing the patterns in your cash flow give you the best shot at attaining stable, long-term growth.

Good Budgeting Helps Maintain Relationships
Chances are you aren’t the only one who has a vested interest in your company. Other stakeholders, like banks or investors, will want to ensure that everything is running smoothly. Report your latest financials quickly and efficiently so that your stakeholders can have confidence in their investment no matter how good or bad the report may be. With accurate and up-to-date insights into your company, your stakeholders can connect you with any resources you need before it’s too late.

Good Budgeting is a Risk Management Tool
As a business owner, it’s your responsibility to be prepared for anything. The most successful businesses are the ones that can quickly adapt when unexpected crises arise. Keeping up-to-date financials allows you to tackle the problem at hand rather than scrambling last minute to find a solution.

By updating your budget monthly, you can effectively buy yourself more time to tackle the problem at hand. For example, If you can see in advance that you won’t have enough cash for an upcoming capital obligation, you can take action now to secure your future needs. It’s always easier to pick a different route if you see that the bridge is up from a few miles away.

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