Budgeting for startups is about achieving the fine balance between conserving precious resources and reaching the market ahead of others
That the life of a startup is beset with problems is no secret. But perhaps the most fundamental of the problems is managing its limited resources, especially money, wisely. Every startup faces a period in its early life when it spends money from a depleting stock, with very little of the resources coming back as revenue.
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If your planning and expectations turn out to be wrong, you can always raise more capital. However, there is only this much of capital that you can raise, whether it is from personal sources or from professional resources like funds and investors. Indeed, a company that has not been able to meet its original revenue generation may not be everybody’s favorite to get funding. From the point of view of the entrepreneur, borrowing more and more money from outside when you aren’t even sure if and when you would be able to pay it back will bring with it a new set of problems.
The rate at which a firm, typically a startup, uses its cash while striving to grow its revenues to match and exceed its expenditures is called the ‘burn rate’—similar to the rocket-science equivalent used to make sure that the rocket burns just enough fuel to keep it on its track, but not so much that the fuel will run out before hitting the orbit.
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