Planning, Forecasting and Budgeting Approaches in Startups (Part3)

[Management Control System Series]:

Part 1: Management Control in Early-Stage Startups.

Part 2: Management Control System Assisted Decision-Making in Startups

Part 3: [This article] Planning, Forecasting and Budgeting Approaches in Startups

Founders in a startup always stay positive and give their best for the development and growth of their dream businesses. It also means that getting success is a big challenge with limited resources. That puts pressure to stay on track by taking the right decisions; time and again.

There are a few things that are bound to happen naturally; such as decisions going wrong, diversions from goals and objectives, etc. But the good point is that the founders can still take course correction initiatives with proper systems and processes in place.

Planning, forecasting, and budgeting processes established as part of the Management Control System (MCS) help startup founders keep their businesses on a planned path towards success.

[A] Planning:

At times the steps taken by founders and top management may extend the length of their journeys to reach the destination. No worries, this happens. But giving conscious efforts to overcome wrong actions will help to reach the destination faster.

Approaches to Planning (To be AVOIDED):

• Rushing to start a new project without proper planning.
• Pulling out resources at random without proper manager/stakeholder communication.
• Dictating the technology team to develop functionality avoiding product roadmap targets.
• Self deciding a product/service launch without evaluating the capacity to develop and deliver.
• Asking for reports at random, even without explaining to employees about expectations.
• Unavailability of success factors giving no direction to the team working on the project.

Approaches to Planning (To be ADOPTED):

• Analyze new project opportunities properly.
• Revise goals, objectives, and roadmap including new project targets.
• Collect feedback about technical feasibility, resource requirement, timeline, and a suitable version of the product.
• Formation of a formal team to work on the project.
• Initiate kick-off meetings and communicate about new project initiation, goals, deliverables, target dates.
• Map new goals to higher organizational objectives.
• Develop a product launch strategy by engaging the product management, marketing, sales, support team members, and do plan for training.
• Ensure the Application Maintenance and Support structure is in place before the launch date.
• Defining roles, responsibilities, operational processes, communication, data capture formats, and reporting structure.
• Define and communicate critical success factors (CSFs) to everyone and measure them.

Founder’s Argument: There are situations, where founders might argue that they invest in projects despite knowing that they will make losses. They do this to impress their customer, to divert the attention of their competitors, or to show to investors that they are not sitting idle and something is still going on. Right or wrong? Well, this is a separate topic for debate and discussion. This article focuses on formal processes to be followed to maximize success and help in decision making.

[B] Forecasting:

Forecasting is another kind of plan which is next to budgets and strategic plans. Forecasting may include a sales forecast or it may go hand in hand with new projects focusing on Return on Investment (ROI). Forecasting has to be substantiated along with manpower, efforts, and activities performed. Forecasting forms the basis for budgeting, performance analysis, and budgetary control.

Approaches to Forecasting (to be AVOIDED):

• Casual forecasting.
• Not giving importance to forecasting altogether.

Approaches to Forecasting (To be ADOPTED):

• Formal forecasting is required considering minimum, maximum and optimum levels.
• Involve and take feedback from middle managers and frontline resources who directly work in the field.
• Need to consider past experiences and performances of similar projects or similar market conditions.

[C] Budgeting:

Forecasting feeds to budgeting. Your startup is ready for formal budgeting implicitly confirms that cost management and control systems are already in place. The first part of budgeting is to calculate the costs associated with the project. Founders need to plan for projects in such a way that it starts generating inflows sooner than later. This is the indication that your project is accepted in the market; and with proper strategies and execution, break-even is possible anytime soon.

Approaches to Budgeting (to be AVOIDED):

• Not giving importance to budgeting altogether.
• Budgeting is good but the attitude is ‘we-do-not-follow’.
• Changing the track mid-way without approval.
• Unwanted items always take priority and get included in projects.
• Only high-level plans and budgeting (and no progress check of those)

Approaches to Budgeting (To be ADOPTED):

• Establishing a standard framework for budget preparation.
• Ensure decision making is based on budgets.
• The budget process to include static sub-budgets for a period or a project.
• Prepare monthly, quarterly, half-yearly budgets as needed.
• Monitoring costs and performance analysis with mid-level managers.
• Detailed level execution plan.
• Simple budgetary control method touching key business parameters.

It is recommended not to follow strict budgeting processes in a startup. The idea is to implement budgeting processes that are better than not having it. With the adoption of simple budgeting processes, the founders will have accurate data in front of them for decision making. It is normal to readjust budgets to changing market scenarios, and to new circumstances.

Founder’s Argument: Some founders may argue that one reason for not preparing a budget is a principle of simplicity; and secondly the idea of budgeting works but it may cause more work than value. Well, when these processes are needed to be adopted sometime soon why not at an early stage?

Key Takeaways:

Disclaimer: This article is based on experiences that might be generic or specific at times to business conditions. Please consult your advisors, mentors, certified consultants for needs related to your venture, raising money, strategies, planning, forecasting, processes, partnerships, etc. The takeaways are responsibilities for those embarking on a startup journey owning risks. All rights reserved.