October 4, 2022
Insights

The Briefing: How to build a budget that will grow, not constrict, your business

,
,

Editor’s note: The Briefing is our series highlighting strategic projects and insights from experienced finance pros. Follow us on LinkedIn or Twitter to get alerts for new briefings.

If you’re trying to implement a budget at your organization for the first time, you might be surprised to find yourself fighting an uphill battle. Some leaders see budgets as restrictive, constraining, or limiting—a necessary evil that will slow down operations or add administrative burden.

However, at Ramp, we view the budget as a powerful tool that facilitates and drives growth by:

  • Providing a roadmap for teams to action
  • Ensuring efficient allocation of capital across the business

The budget is our opportunity to outline how we want Ramp’s financial statements to look in the future and how we can maximize the company’s potential.

Not only can a budget put your company on a path toward sustainable growth, but it can also prevent cash flow surprises that can create stress and, in a more extreme scenario, derail your finances. Here are the guiding principles we used to help our team create a successful first budget, along with advice for other early-stage companies looking to do the same.  

Step #1. Perform a complete inventory

Our first step at Ramp was to conduct a complete inventory of our current spending. We assessed all of our vendors, determined what we were paying, and mapped out who was making each budget decision. It sounds simple, and you might be thinking, "I already have an idea of what my company spends – we close our financials every month."

However, without doing the requisite deep-dive, there could still be some unwelcome spending surprises. Completing an inventory provides the visibility necessary to guide the budget forward. 

Pro tip: Be discerning during this process. It’s easy to want to continue certain spending patterns because that’s the way things have always been done. But it’s best to take time to truly re-evaluate your spending and investments to make the best use of the company’s resources. 

Step #2. Determine your budgetary approach 

Once we had a complete understanding of our current spending, the next step was to determine how we wanted to budget for future expenses. To start, we designed an approach that borrows heavily from zero-based budgeting, opting to rebuild the budget from scratch. We chose this approach for three reasons: 

  • First, we believe that budgets should be ROI and data-driven. At all times, we challenge our employees to make the highest ROI decisions possible, and we wanted to structure our budget to reflect this framework. 
  • Second, we strongly believed that the budget in a prior period should not inform a budget in a future period, one of the core tenets of the zero-based approach. As a finance admin, I wanted to avoid scenarios where team leads feel incentivized to arbitrarily spend out of concern that not doing so will penalize their team going forward.

  • Perhaps more importantly, we wanted to evaluate all spend based on a) the value that it returns to the company at that point in time and b) the opportunity cost of investing in one area as opposed to another. The zero-based approach requires that you challenge the status quo.

While we view zero-based as the best approach for creating your first budget, it is time-consuming and thus is not the right decision for all companies or for every budgeting cycle.

Pro tip: Think about what’s most important to you and your business. Are you trying to optimize for simplicity? If so, incremental budgeting may be a better approach. Are you trying to tie budgets to certain activities or pods?  If so, activity-based budgeting may be a better fit. Are you trying to control costs or build an ROI-forward P&L culture? If so, zero-based might be for you.

Step #3. Align on your priorities

The goal for each company’s budget will be different, but it’s critical that you align on the financial priorities that you use as a north star metric. As noted above, budgeting is your opportunity to outline how you want your financial statements and business performance to look three, six, twelve months down the road, so it’s only natural that you first need to identify what success looks like. 

At Ramp, we are focused on both growth and efficiency. To this end, we identified a few core ROI targets that we aimed to achieve in various areas of the business and then designed our budget around these metrics.

Having a consensus view of what you're aiming to achieve can also be helpful in conversations with budget owners, particularly in situations where you are forced to make budgetary trade-offs. This allows you to root decisions in data and provides increased transparency for department heads.

When we set up different departmental budgets, we worked with the teams to understand their goals and talk through the resources that they needed to achieve them. However, we also made it clear that we had some corporate-level financial objectives that we also needed to consider when evaluating the ROI and payback timeline of an investment.

Pro tip: Be realistic, but ambitious, with your goals, and work across leadership to ensure that you have consensus. Once you have a consensus north star metric, be transparent and communicate that throughout the budgeting process. Setting a clear company-wide principle—e.g. CAC payback of <18 months—can help guarantee a smoother budgeting process.

Step #4. Create a strong reporting processes 

Your first budget will only be successful if you also have a strong process for reporting and management.  You need to be able to track expenses in real-time and compare actuals to budget in a timely manner. A strong budgeting reporting process will help implement a sense of responsibility / accountability across the various budget owners, will help with budget decisions in the future, and will also help improve your operating teams’ performance. Most people think only of creating the budget and forget about the work after-the-fact that will ensure your budget’s success and longevity.  

At Ramp, we set up a monthly process to review each team’s actual spend, which we pull from our Ramp portal, in the context of the budget. If there is significant variance, we then touch base live to fill the gaps and figure out if any changes are needed in the future. 

Pro tip: If budgeting at the department level, be sure that all of your systems are set up in a consistent and uniform way, so that you can take advantage of automation. For example, make sure that the marketing department in your HRIS is the same as the marketing department in Ramp and the marketing department in your ERP.

Implementing the budget

A budget may initially seem like a blocker to both flexibility and growth, but in reality, it is the opposite. By implementing the steps above and creating a budget that’s the right fit for your company, you’ll prevent cash flow leakage and help to maximize your company’s short- and long-term potential.

Error Message
Thank you! The template will now be downloaded!
Oops! Something went wrong while submitting the form. Please try refreshing the page.

Error Message
Thank you! The template will now be downloaded!
Oops! Something went wrong while submitting the form. Please try refreshing the page.

Learn how Ramp strengthens your finances

Error Message
No personal credit checks or founder guarantee
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Asher Kaplan
Strategic Finance & FP&A Lead, Ramp

Asher has led finance, capital markets, and operations at a number of companies, including Earnin and CommonBond. He holds an MBA from The Wharton School and a BA from Colgate University (Roll Gate!).

More Resources
View All
No items found.
View All
FAQs
Meet our customers

How we help Candid establish a global presence

How we help FirstBlood close their books 150% faster

How we help Elementus save 80 hours per month

How we helped Eight Sleep launch a new product with Ramp Flex

How we helped Causal save 10 hours/month closing the books with Ramp

How we helped Bubble streamline operations and save $90k+ with Ramp Bill Pay

How we helped WizeHire save over $100k in annual SaaS spend with Ramp

See how Ramp helps different industries save time and money

No items found.

Learn more about Ramp

Streamline approvals.
Review requests, pre-approve expenses, and issue general expense cards in a few clicks – or directly in Slack. Delegate approvals and empower your team leads to spend on the things they need and control their team’s expenses.
Learn more
Issue instant cards.
Unlimited virtual and physical cards with built-in spend limits, instantly available for everyone in your team. Define spend rules and let your smart cards enforce your policies automatically. No more surprises or under-the-radar spending.
Learn more
See spend as it happens.
Stop waiting on monthly statements or manual spreadsheets. Find, browse, and download real-time transactions from any employee, department, or merchant – on any device.
Learn more
Close your books 5x faster.
An accounting experience by finance teams, built for speed and efficiency. Automate manual processes and start enjoying instant reconciliation – Ramp does all the heavy lifting.
Learn more
Trim wasteful spend.
Ramp analyses every transaction and identifies hundreds of actionable ways your company can cut expenses and alerts your team via email, SMS, or Slack. It’s like having a second finance team, laser-focused on cutting costs.
Learn more
Consolidate reimbursements.
Ramp makes it easy to reimburse your employees for any incidental out-of-pocket expenses. Review, approve, and pay employees back for anything that didn’t make it onto a card with the rest of your Ramp transactions.
Learn more

Get fresh finance insights, monthly

Time and money-saving tips, straight to your inbox
Thanks for signing up
Oops! Something went wrong while submitting the form.
No, thank you