Startup Budgeting Tools: What To Look For And How To Use Them

Running out of money without access to additional funds can be fatal for a startup. That's why effective budgeting is crucial.

While spreadsheets can handle budgeting, they have their limitations, including potential errors from manual data entry. A better alternative? Startup budgeting software. 

The ideal budgeting software predicts cash flow, provides detailed reports comparing budgeted versus actual spending, simplifies financial planning, and facilitates scaling. Not only will this help you grow your business, but it will also impress potential investors.

Throughout this guide, discover the fundamentals of startup budgeting, what to look for in budgeting tools, and how you can use these tools for your startup's benefit.

What Are Startup Budgeting Tools?

A startup budget estimates how much it’ll cost to start and operate your business. Effective budgeting helps you manage resources, reach important goals and objectives, and create effective strategies.

Remember that budget tools are not always completely accurate. But utilizing historical data and making assumptions to forecast monthly expenses will improve your budget accuracy over time. This learning process will particularly help you better anticipate variable expenses. 

If you want to learn more, take a look at our guide to startup budgets.

Key Features Of Startup Budgeting Tools

The following are essential features you should look for in startup budgeting tools. These features give you greater financial control of your resources and help youplan for future growth and challenges.

Extensive Financial And Cash Flow Forecasting

If you're unknowingly approaching your zero-cash date, you may not be able to raise new capital in time to keep your business running. Instead of realizing last minute that you're out of cash and going into emergency mode, you can course correct in advance with accurate financial and cash flow forecasting.

Financial forecasting allows you to  predict future trends by analyzing past data. By examining historical finances, you can anticipate cash flow patterns (sales and expense) and plan accordingly.

Detailed Actual Vs Budget Reports

Your budgeting tool should enable you to compare actuals versus budget on a central dashboard, in real-time. 

A budget versus actual report shows you how your expected spending (budget) lines up with how much you spent (actual). It's one of your company's most critical statements to evaluate your financial health, regardless of your accounting method.

With real-time access to your budget versus actuals, you can identify operational gaps, evaluate your company's performance, and create accurate financial forecasts. That way, you’re immediately aware of problems with your spending and financial goals.

Ability To Import Data From Other Budget Spreadsheets

A good budgeting tool should import data from other budget spreadsheets. It should also integrate with other financial software you use regularly.

Without these integrations, you or your staff may spend several hours or days manually importing essential data from one software or spreadsheet to your budget spreadsheet. Opting for software with integrations and automatic import can save time and payroll costs.

Scenario Modeling For Any Future Changes

Businesses use scenario modeling to estimate how positive and negative changes may affect their cash flow, balance sheet, and operations. Scenario modeling involves exploring various possibilities, predicting their impact, and deciding what to do if certain circumstances arise.

During a scenario analysis, you create different potential future situations for your business. These situations involve assumptions about prices, costs, customer metrics, interest rates, and other variables. 

Typically, they start with three scenarios: 

1. Average or base case
2. Most severe or worst case
3. Most ideal or best case

Once you outline these, you can assess each scenario and its potential effects so that you can plan accordingly. 

For example, you can compare what happens to your customer retention if the economy stays the same, recedes, or improves. By seeing the impact on your company in all three scenarios, you can plan for any changes or investments you should make in case those events occur.

Scenario modeling can be complex, so it should be included in your planning and budgeting software.

Visibility Of Net Burn

Net burn rate is the total amount of cash your startup loses monthly. Its formula is:

• Total monthly revenues - total monthly COGS - total monthly operational expenses = net burn rate

Look for a tool that displays this metric, as a high burn rate could show that you risk running out of funds soon. Investors and board members also look at the net burn rate closely.

How Business Owners Can Use This Financial Tool

Budgeting tools can enhance how you manage finances, forecast future performance, and demonstrate your company's financial health to investors and board members. With the insights that budgeting software gives you, you'll make better decisions and be prepared for future challenges.

To save time and gain real-time insights, search for a budgeting tool that lets you plan and budget quickly and provides thorough analyses. This way, you can identify and proactively address problems before they become critical issues.

How Business Budgeting Software Can Help Your Business

The optimal budgeting tool for startups forecasts cash flow offers real-time insights, compares detailed actuals to budgets, streamlines financial planning, and delivers precise reports to investors and board members. It's even better if the tool includes a virtual CFO with the expertise to analyze the data and ensure your startup's success.