Think back to the earliest days of your startup. What started off as nothing more than an idea bloomed into a company. How did that happen? To a large extent, you can probably chalk it up to careful planning followed by diligent execution.
With the new year about to roll around, it’s time to employ that same level of care. Building your 2024 budget should be a lot easier than, say, budgeting for your company before it ever existed. But that doesn’t mean you should get lax or simply let your 2023 budget and projections roll over into 2024.
To help you set your tech company up for success in the coming year, we recommend the following as you work on your 2024 budget:
Focus on future-proofing
Tech moves fast, and if you want to stay ahead of the curve, you need to make a proactive effort.
That means allocating resources toward R&D and continuous improvement projects. That can feel tricky if your budget is tight for 2024, but it’s key to avoiding stagnation and seeing success next year.
Plus, some of the money you spend on research can likely help you slash your tax bill. The R&D tax credit lets companies reduce their tax liability by as much as $500,000 for qualified research expenses. And you should know: salaries for people engaged in research can count as a qualified research expense.
Build your assumptions — then test them
Ignore the old saying you’ve probably heard about assumptions. They’re key for any company that wants to look forward and plan for the future.
Sit down and take a comprehensive look at recent years’ financial data. Then, use it to build assumptions about revenue and expenses in 2024.
That’s a solid first step. But to really feel confident going into the new year, you should stress-test those assumptions. Run through at least a few different scenarios (e.g., an economic downturn, a new player in the market, you don’t raise as much as expected in your next round). See how those scenarios impact your assumptions. Ideally, you want to feel confident that even if something critical happens, your 2024 budget can still crunch.
If you want to learn more about building assumptions to inform your startup’s budgeting, you can refer to this forecasting blog post we wrote a couple of years ago.
Fears about a recession seem to be dissipating. And if 2023 was a solid year for your tech company, you might be tempted to launch into big growth measures next year.
You absolutely can, but you need to make sure you don’t overextend your budget. This is where stress-testing your assumptions can be helpful.
To ensure any growth plans you have make sense for your business long-term and can weather whatever 2024 brings your way, loop in key players across all departments. You don’t want to make a plan to launch into a new market only to find that legal has concerns, or to aim for a new product launch right when sales are usually busiest renewing existing clients.
As you budget for 2024, focus on sustainable growth that works for your entire team.
Remember that cash is king
You can build all of the budgets and assumptions you want for the coming year. But none of them will matter if you don’t actually have the cash on hand that you need.
As you build your budget for 2024, think carefully about cash flow. In fact, look for ways to optimize it. Could you renegotiate when you pay your office lease to better align with a seasonal uptick in sales? Could you extend terms with any of your vendors, or put certain clients on an automatic billing system to ensure prompt payment?
Working through the cash flow piece of your budget goes a long way toward helping you avoid the sticky situation that arises with limited cash. It’s a common issue for tech companies, so it’s prudent to work to proactively avoid it.
Make a plan to track and calibrate where needed
Your 2024 budget serves as a master guiding document for the coming year. But that doesn’t mean you’re etching it in stone.
In fact, your budget needs to be flexible to allow your company to move with whatever comes your way next year. So, as you create your budget, consider creating check-in points, too. You might schedule a quarterly meeting with key players, for example.
At your check-ins, you can compare your assumptions with the reality of your 2024 revenue and expenses. Then, you can see if your budget still makes sense, or if you need to tweak it (or even make sweeping changes) to keep your startup on the right financial track.
Outsource where it makes sense
Almost everyone who makes a budget wishes there was more money to go around. You might feel torn about the decisions you have to make about how resources will get allocated in the coming year.
To help there, look for opportunities to outsource. Hiring employees means paying their salary or hourly wage, which already represents a huge chunk of change. Beyond that, though, there are the tax implications to consider, plus any benefits you plan to extend their way.
Long story short, your headcount probably represents a huge portion of your overhead. In 2024, rather than bringing on new employees, outsourcing might help you keep more cash on hand and extend your runway. You could outsource some of your marketing needs to an agency, for example, or hire a fractional CFO rather than a full-time one.
Evaluate where this makes sense for your startup, not just financially but in terms of everything you need. In some cases, the overhead of an internal employee might be money well spent. But when outsourcing aligns with your needs and goals, it could be a helpful tool in freeing up more budget for 2024 and beyond.
These are just a few ideas to get your wheels turning. If you want more guidance or inspiration to help you build a 2024 budget that can propel your tech company forward, don’t hesitate to reach out to our team. As CPAs with extensive experience in working with tech startups, we have plenty of tips and tools we can help you employ.