Budget planning

Budget Planning

Annual Budget Process

Timeline (Reverse Calendar)

Date	Milestone
Oct 1	CFO issues budget guidelines and macro assumptions
Oct 15	Department heads submit headcount plans
Oct 31	Department heads submit expense budgets
Nov 15	Finance consolidates, identifies gaps vs. plan
Nov 30	Executive review and negotiation
Dec 15	Board approval
Jan 1	Budget locked — new fiscal year begins

Macro Assumptions to Align Early

• Revenue growth target (top-down or bottoms-up)
• Headcount growth % by function
• Inflation assumption for salary increases
• Capital markets / fundraising assumptions
• Key risk scenarios: bull / base / bear case

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Budget Approaches

Top-Down

• Executive sets targets → departments fill in how to achieve
• Fast, aligned to strategic priorities
• Risk: unrealistic targets disconnected from operational reality

Bottoms-Up

• Departments build from detailed plans → consolidate to company total
• More accurate, builds ownership
• Risk: empire building, everyone asks for more than needed

Zero-Based Budgeting (ZBB)

Every line item must be justified from zero — prior year spend provides no entitlement.

ZBB Process:

1. List all activities performed by the team
2. For each activity: what is the output? What does it cost to deliver?
3. Rank activities by strategic value
4. Allocate budget from highest to lowest priority until budget cap is hit
5. Document what is cut and the business impact of each cut

Best for: Cost-heavy functions (G&A, marketing ops), post-acquisition cost rationalization

Rolling Forecast

• Re-forecast full year every quarter (or monthly for fast-moving companies)
• Replace static annual budget with living projection
• Formula: Actuals YTD + updated forecast for remaining months

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Department Budget Template

Department: [Name]
Budget owner: [Name / Role]
Fiscal year: YYYY

HEADCOUNT
  Current HC:     N FTEs
  Planned hires:  +N FTEs (list by role + planned start date)
  Planned exits:  -N FTEs (attrition assumption)
  Year-end HC:    N FTEs

  Salary & benefits:     $X
  (loaded cost per employee: base + benefits + payroll tax ≈ 1.25× base)

DIRECT EXPENSES
  Software / SaaS:          $X
    [Tool 1]:               $X/year ([N] seats × $X/seat)
    [Tool 2]:               $X/year
  Contractors / agencies:   $X
  Travel & entertainment:   $X
  Training & development:   $X
  Conferences:              $X
  Other:                    $X

ALLOCATED EXPENSES (from shared services)
  IT:          $X
  Facilities:  $X
  HR:          $X

TOTAL DEPARTMENT OPEX:  $X

CAPEX (if applicable)
  [Equipment / infrastructure investment]:  $X
  Useful life: N years → annual depreciation: $X/year

TOTAL BUDGET: $X
YoY change vs. prior year: +/-X%

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Headcount Planning

Headcount Model Inputs

Input	Owner	Notes
Revenue plan	Finance	Drives sales / CS HC
Product roadmap	Product	Drives engineering HC
Support volume forecast	Support	Drives support HC
Target ratios	Executive	e.g., 1 CSM per $Xm ARR
Backfills	HR	Track separately from growth hires

Function-to-Revenue Ratios (SaaS benchmarks)

Function	Benchmark ratio
Sales (AE)	1 AE per $1–2M quota
CS	1 CSM per $1–3M managed ARR
Support	1 agent per X tickets/month (varies by complexity)
Engineering	1 eng per $200–400K ARR (scales with maturity)
Marketing	10–15% of revenue (varies by motion)
G&A	10–15% of revenue at Series B/C

Ramp Cost Calculation

New hire total cost (first year) =
  Annual salary × 1.25 (loaded)
  × ramp factor (typically 0.5 for partial year + ramp)
  + recruiting cost ($X per hire)
  + equipment ($X)
  + onboarding overhead ($X in manager / team time)

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Capex vs. Opex Decision

Factor	Capex	Opex
Upfront payment	Capitalized, depreciated over useful life	Expensed immediately
Cash flow impact	Large upfront, smaller P&L hit per year	Immediate P&L hit
Tax treatment	Depreciation deduction over time	Full deduction in year incurred
Flexibility	Lower (committed asset)	Higher (cancel subscription)
Balance sheet	Increases assets	No balance sheet impact
Best for	Long-lived assets (servers, IP, equipment)	SaaS, services, recurring costs

Cloud Infrastructure Decision Framework

• If predictable, high-volume workload: reserved instances (capex-like commitment, opex accounting) = lower cost
• If variable, unpredictable: on-demand (pure opex) = flexibility
• If exploratory: spot / preemptible = cheapest, interruption risk

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Budget Variance Analysis

Monthly Variance Report Template

[Month] Budget vs. Actuals — [Department]

                    Budget      Actual      Variance    Variance %
Salaries & Benefits $X          $X          $(X) fav    -X%
Software / SaaS     $X          $X          $X unfav    +X%
T&E                 $X          $X          $X unfav    +X%
Contractors         $X          $X          $(X) fav    -X%
Other               $X          $X          $X          X%
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TOTAL               $X          $X          $X          X%

YTD:
                    Budget YTD  Actual YTD  Variance    Variance %
TOTAL               $X          $X          $X          X%

Key explanations:
1. Software overage ($X): [Root cause — e.g., "price increase on Salesforce, not budgeted"]
2. Contractor favorability ($X): [Root cause — e.g., "project delayed to Q3"]

Reforecast for full year:
  Prior full-year budget:    $X
  Revised full-year forecast: $X
  Change:                    $X (+/-X%)

Variance Materiality Thresholds

Threshold	Action
< $10K or < 5%	Note in monthly report, no escalation needed
$10–50K or 5–15%	Explain in variance report, reforecast line item
> $50K or > 15%	Escalate to CFO, budget amendment may be required

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Budget Request Template (Mid-Year)

Budget Request — [Description]
Submitted by: [Name / Department]
Date: YYYY-MM-DD
Amount requested: $X (one-time) / $X per [month/year] (recurring)

Business case:
  Problem: [What situation requires this spend?]
  Solution: [What will this purchase or investment accomplish?]
  
Expected benefits (quantified where possible):
  - [Outcome 1]: saves X hours/month = $X/year
  - [Outcome 2]: enables $X revenue
  - [Outcome 3]: reduces risk of $X loss

Alternatives considered:
  - [Alternative 1]: rejected because [reason]
  - [Alternative 2]: rejected because [reason]

Timeline: [When is budget needed? What are the milestones?]

Risk of not approving: [What happens if this is declined?]

Approval required from: [Finance + relevant exec]

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Budget Governance

Budget Amendment Policy

• Reallocation within department (same total): manager approval
• Reallocation across departments: CFO approval
• New spend > budget total: exec + CFO + board notification above threshold
• Emergency spend: CEO authority up to $X, then board

Forecast Cadence

Company stage	Forecast frequency
Seed / Series A	Monthly
Series B+	Monthly (detailed) + rolling 12-month
Pre-IPO	Weekly during planning; monthly ongoing
Public	Quarterly guidance + monthly internal