How to create an annual budget process for early-stage businesses

Jonah Remz
Jonah Remz
Head of Finance
Posted on
April 18, 2023
min read
How to create an annual budget process for early-stage businesses

Launching an annual budget process can seem like a daunting task, especially for early-stage businesses that have minimal financial resources and department heads who are too busy focusing on scaling their teams to pay attention to budget. 

Early-stage businesses also frequently pivot their business or product strategy, which makes it difficult to think about budget more than a quarter out. 

However, difficult doesn’t mean impossible. This article will outline why it’s important to run an annual budget process as an early-stage company, what you should look to accomplish during the process, and some tips you can use to launch a successful annual budget process.

Why is an annual budget process important?

With all the fast-paced chaos involved in an early-stage company, you may wonder why you should even spend time creating an official annual budget process. Here are 3 of the biggest reasons it can help your company achieve both your long-term and short-term goals.

1. It aligns executive leadership on company goals 

Before you dig into the drivers behind revenue or the expected spend by vendor, it is critical to first align the organization on the key company goals for the year. 

Department heads need a clear understanding of what the founders and board are targeting to achieve in the year, so they can start thinking about the resources required to deliver on those goals. Launching the annual budget process can act as a catalyst for getting the entire organization energized and aligned toward company goals and strategies to hit those goals.

2. It establishes a framework for metrics and drivers of revenue to be tracked against throughout the year

The annual budget process provides an opportunity to clearly define key drivers and assumptions that can inform the entire organization on how the finance team forecasts annual revenue for the business. This is crucial for keeping everyone on the same page and ensuring everyone does their part to drive results. 

It’s important to remember that these key drivers and metrics should be actively tracked with clear owners. This ensures that it’s easy to perform variance analyses on how actuals compare to the official plan and what is driving the deltas each month. While these revenue KPIs will vary depending on your business type and industry, a general rule of thumb is to use the most critical “volume x rate” metrics to highlight business performance (i.e, how many units are sold at your average price).

3. It empowers department heads to own their budgets and understand their spend

What stage your business is in and the number of financial resources you have will determine which direction you lean in terms of bottom-up vs. top-down forecasting of department expenses.

However, expense budgeting details aside, it's important to ground your business partners on what their actual spend levels are and what spending or resources are needed for the upcoming year to deliver on company goals. Once that has been established, empowering department heads to completely own their budget and manage their spend within the approved limits can be a highly effective and motivating way of controlling spend.

A key aspect to accomplishing this is having the ability to quickly and accurately keep business partners up to speed on how their spend is tracking vs. what the budget allows. This can be done with an effective accounting and reporting system, and that starts with implementing an annual budget process. 

It’s also important to remember that in an early-stage business, realities can change quickly, so flexibility is always needed to reset spend limits throughout the year based on evolving realities. At Capchase, we do this on a quarterly basis, but you can choose any frequency that works.

5 tips for running an annual budget process at an early-stage business  

1. Start the process early, but not too early

At more established companies with thousands of employees, the finance team might start the annual budgeting process 4+ months prior to the end of the year to give enough time to align goals with all departments and work through multiple iterations of the budget. 

For an early-stage business, starting the annual budgeting process 4 months in advance is likely far too early, as the business will probably change and grow too much for the plan to be relevant by the time the year ends. Depending on the size of the organization and how complicated the product offerings are, early-stage businesses should typically start the process 1 to 2 months before year-end.

2. Don’t make the forecasting and expense budget builds too complicated

Most departments you’ll be partnering with to create the company budget do not come from finance backgrounds. Pulling up a wall of numbers in an Excel spreadsheet and trying to quickly run through them with other department heads is not an efficient use of time and will not lead to finalizing the budget in a timely manner.

So what should you do instead? There’s no perfect way to handle this, but in general, try to over-communicate how your business partners should interpret the budgets and over-simplify the process for collecting information.

3. Ensure you have an audit trail and centralized notes about assumptions

While it may seem like a super clear and unforgettable assumption at the time, you’d be shocked at how many times you may go back to the budget to review a specific month’s numbers and have no recollection of how you came up with it. Or, you may be on a finance team with multiple employees who all play different roles in creating the final numbers, which can make tracing assumptions even more difficult.  

This is why centralizing documentation that backs up assumptions is so important. You don’t want to find yourself in a situation where one employee knows all the backup to the budget, but since they’re on vacation or left the company, no one can access the information. 

4. Set up spreadsheets and budgets to make referencing and running variance analyses easier

While building the annual budget process, you’ll be speaking with multiple different department heads who will each approach budgeting differently and may ask for ad-hoc mini models on the side to help inform their specific budget. 

While these requests are okay and can even help build respect for the finance team, it's important to stick to the same budget structure across departments. Incorporate line items that tie into the accounting chart of accounts and can be easily compared to actuals each month as they come in.

5. Be flexible and willing to re-forecast frequently

At an early-stage business, you may find yourself only a few months into the new year when a massive new opportunity arises that requires spend levels materially different from what the annual budget allows for. 

If this happens, don’t let the annual budget get in the way of doing what's best for the business. Re-visit your assumptions, analyze what the new opportunity will change from a revenue, cost, and resource perspective, and re-forecast accordingly. Nobody has a crystal ball, and budgets can and will change—especially at early-stage businesses when goals and even business direction can look drastically different from the beginning to the end of the year. 


In conclusion, running an annual budget process at an early-stage company is important as it can:

  1. Align your executive leadership team as well as the entire business on company goals and strategies for the upcoming year.
  2. Level-set stakeholders on understanding the most valuable key metrics and drivers for growth and success.
  3. Empower department heads to own their expense budgets and set a cost-conscious tone across the business.

Just remember to:

  • Start the process early to give time for proper alignment and going through multiple iterations.
  • Keep the budgeting templates and models simple for other departments to understand.
  • Keep a detailed backup of your logic and assumptions.
  • Use a format that is conducive to seamlessly adding actual results. 
  • Be flexible on re-forecasting when the realities of the business change.