Budgeting

Budgeting is resource allocation against strategic hypotheses, not an accounting compliance exercise. Operating budgets must establish departmental spend envelopes, forecast cash runway under variable revenue trajectories, and institute rolling 4+8 and 9+3 variance reviews to catch expense anomalies before they threaten liquidity.

1. Operating Budget Architecture

Deconstruct company expenses into three structural layers:

• Headcount Costs (typically 70%–80% of tech OpEx): Model fully-loaded payroll (base salary + employer payroll taxes + healthcare + 401(k) match + hardware/SaaS seat stipends). Use a 1.20x–1.25x multiplier on base salaries.
• Direct Variable COGS: Cloud compute, database storage, payment processing, third-party API token costs. Model directly as a percentage of revenue or active user volume.
• Fixed & Discretionary OpEx: Office rent, legal/accounting retainers, travel and entertainment (T&E), software tooling.

2. Rolling Forecast Models (4+8, 9+3)

Static annual budgets become obsolete within 90 days. Implement rolling forecasts:

• 4+8 Forecast: 4 months of closed historical actuals + 8 months of updated forward projections.
• Scenario Sensitivities:
  • Base Case: Budgeted target revenue growth (e.g. +40% YoY).
  • Conservative Case: Flat net new bookings; headcount freeze; extends runway by 6 months.
  • Downside / Stress Test Case: 20% revenue contraction; immediate elimination of discretionary spend.