Budget

I received plenty of useful feedback on my rant Budgets – There Has To Be A Better Way . Two of the links that I found particularly helpful were: Turn Your Budgeting Process Upside Down by Robert Howell How to Ruin Your Company with One Bad Process by Ben Horowitz Robert Howell points to a longer term view than one year with his suggestion around rolling plans. He also emphasizes a focus on economic value – specifically future cash flows – rather than accounting earnings. Simply – focus on cash, rather than non-cash calculations. He ends with a great paragraph on eliminating the word “budget” and reorienting it around your specific goal (e.g. “profit plan”, or “break-even plan”, or “maximum monthly investment of $500k plan.”) ...

“This budget will let us have 2020 vision.” I heard that quote at the end of a board meeting yesterday and laughed out loud. As someone with terrible eyesight (I’ve worn glasses since age 3 and had eye surgery at age 8), my “vision” has always been suspect … I’m in Seattle for a few days doing the end of year board meeting/budget drill at a number of our Seattle-based companies and thought this was a priceless pun. ...

We are in the middle of the budget planning process at many companies. This is a recurring Q4 event that spills over into Q1. Budgets for the next year (2020) get finalized between December 2019 and February 2020. As I was daydreaming the other day during a budget discussion, I thought to myself “there has to be a better way.” Since I started investing in private companies 25 years ago, I’ve been experiencing the same cycle over and over again. ...

As we head into 2017, I have a steady stream of operating plans hitting my inbox. Since many of our investments are companies that are scaling, vs. companies that are just getting started, there are a lot of derivative metrics in these plans. Q1 is the easiest quarter to make your plan, so most of these companies are getting a free pass for the next three months after fighting the good fight of making or beating plan in Q3 and Q4. For the SaaS and recurring revenue companies, if they missed by more than 5% in 1H16 and didn’t reforecas t, they’ve had a particularly grueling uphill climb for the past six months. ...

If you are the CEO of a VC or angel backed company, will need to raise more money in the future, are doing more than $100,000 of revenue a month, and are growing more than 25% a year, then this post if for you. In January, you finalized your budget. Unless something went horribly wrong, you made your plan in January, especially if the plan was finalized in February. Assuming things were on track, you made March and declared victory on Q1. ...

Last night I got an email with a Q3 sales update from a company I’m an investor in for a while. They consistently meet or beat their plan and are an extremely well managed business. Their plan for Q3 was aggressive in my book (and they’ve managed their costs to a lower outcome) had an expectation for what they would come in at based on data from as recently as last week. I knew what they thought the upside case was and didn’t believe it so my brain had locked in on a number slightly below or around plan. ...

We are deep in budget season as the last board meeting of the year typically includes the 2010 Budget – or at least the “2010 Draft Budget” or “2010 Budget – Draft”. This is also known as “the joy of cramming a spreadsheet into a powerpoint presentation.” The budgets I see generally fit into one of the following five categories. Pre-Revenue: We are pre-revenue and won’t generate revenue in 2010. First Year of Revenue: We are pre-revenue but will generate our first revenue in 2010. Growing Revenue: We are on a revenue growth curve in 2010 but will lose money every month. Becoming Profitable: We are currently losing money but will become profitable in 2010. Profitable: We are profitable every month this year. While I’ve written about this before, it’s worth noting that “profitable” is often used to mean either EBITDA positive, Net Income positive, or Cash Flow positive. These are three totally different things and you aren’t really in a happy profitable place until all three are true. ...