1/ It is budgeting time for most of our portfolio companies right now - here are a few best practices I have observed over the years as a board member and investor.
2/ Budgeting for pre seed / seed stage companies is mostly about managing your burn relative to the milestones that you need to achieve for your next round. But from Series A on the yearly budgeting process becomes a central element for managing your company's performance.
3/ Budgeting goes hand in hand with setting goals and priorities for the upcoming year. A budget without such context is meaningless. So start by defining the goals for the upcoming year and then use the budgeting process to assign resources to it and set the financial goals.
4/ In the first few years budgets tend to be way off as the year progresses b/c performance of early-stage co's is hard to predict (often b/c you don't yet fully understand your sales & marketing engine). The goal is to make the forecasting model better and better over time.
5/ A budget is a budget. While it makes sense to re-forecast every quarter based on actual performance, you should still measure yourself against the original budget. If you start using new budget numbers, you loose the insight where you were off with your initial planning.
6/ Try to get early input from your board members and investors before you fully bake the budget - how do you think directionally about the next year (top line growth, total burn, etc.)? Once everybody is aligned around the high-level numbers, you can work out the details.
7/ When you are busy running a startup, making time for a budgeting process often does not feel like the most crucial thing to spend time on. But be assured that it will turn out to be one of the key tools to bring clarity to your business and align the whole organization.
