David Cummings on Startups

Budget vs Actual

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David Cummings

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We don’t use budgets in my company. There, I said it. Yes, many executive would view it as blasphemous to not set budgets and measure actual against it. What do we do in lieu of budgets? We do have quarterly sales bookings goals, recognized revenue goals, profit margin goals, etc. Yes, we look at our salary cap, trailing 12 months revenue and expenses, and a variety of other metrics. On a monthly basis we have a chunk of money to use for whatever comes up, and department managers submit requests and we make decisions to allocate money, or not, within a week.

I’m guessing as we continue to grow, and work through the process of exiting No Man’s Land, we’ll have to do budgets. For now, we’re in no rush.

Comments

One response to “Budget vs Actual”

  1. Chris Avatar
    Chris

    I think there are downsides to budgeting that people rarely talk about. There are the obvious issues, like the games people in large companies play over budgets that have little to do with driving effective business outcomes. Like rushing to spend your remaining budget at year-end to make sure you get a decent budget next year. But more fundamentally, I think it often puts the focus too much on efficiency rather than effectiveness. In marketing, I often see people hamstrung by their budgets and ROI calculations. They can’t innovate because there’s no freedom in a rigid budgeting system for taking risks without a known return.

    I’m curious to hear what other advantages you find from not having a rigid budget. I suspect, given the nature of your business, you’re pretty clear on where money was spent last month and last quarter, and what the outcome was. Whether or not that should be a determination of what to spend next month or next quarter seems to me to be something you’d want to figure out as you go, rather than determine far in advance. Not that the forward thinking nature of budgeting isn’t useful, it’s just less useful when it becomes a set of fetters.

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