How to Create Your Startup's First Annual Budget
A practical, step-by-step guide to building an annual budget that's actually useful. No MBA required.
Time to Complete: 8-12 Hours
Your first budget will take the longest. After that, updates take 2-4 hours quarterly. The investment pays off in clarity and better decision-making.
Creating your first startup budget can feel overwhelming. Where do you even start? What level of detail matters? How do you project revenue when everything's uncertain?
This guide walks you through the process step by step. By the end, you'll have a working budget you can use to make decisions, track performance, and present to your board. For broader context on why budgeting matters, see our complete guide to startup budgeting.
Before You Start: What You'll Need
Gather these inputs before building your budget:
Financial Data
- Current bank balance
- Last 3-6 months of P&L
- Current MRR/ARR
- List of all subscriptions/contracts
Strategic Inputs
- Annual goals and OKRs
- Hiring plan (who, when)
- Major initiatives planned
- Fundraising timeline (if applicable)
Step 1: Set Your Constraints
Before budgeting a single dollar, establish your guardrails. This is the "top-down" part of budgeting.
Runway Target
How many months of runway do you need to maintain? For most startups, the answer is 18-24 months. This gives you time to hit milestones before needing to raise again.
Calculating Your Maximum Burn
Current Cash
$2.0M
Target Runway
18 months
Max Net Burn
$111K/mo
Formula: Cash ÷ Target Runway = Maximum Monthly Net Burn
This is your ceiling. Your budget should result in net burn at or below this number.
For more on runway calculations, see our guide on how to calculate your startup's runway.
Step 2: Project Revenue
Revenue projection is the hardest part because it's the most uncertain. The key is to be realistic, not optimistic.
Start With What You Know
- Existing customers: What's your contracted/committed revenue?
- Historical growth: What's your month-over-month growth rate?
- Pipeline: What deals are likely to close? Apply realistic probabilities.
- Churn: Factor in expected customer losses (typically 5-15% annually for B2B SaaS)
Building the Projection
Sample Revenue Build-up (SaaS)
| Component | Jan | Feb | Mar | ... | Dec |
|---|---|---|---|---|---|
| Starting MRR | $40,000 | $44,500 | $49,450 | ... | $98,000 |
| + New MRR | $6,000 | $6,500 | $7,000 | ... | $10,000 |
| + Expansion MRR | $500 | $550 | $600 | ... | $1,000 |
| - Churned MRR | ($2,000) | ($2,100) | ($2,200) | ... | ($3,500) |
| Ending MRR | $44,500 | $49,450 | $54,850 | ... | $105,500 |
Pro Tip: Take your "realistic" revenue projection and discount it by 20-30%. Founders almost always overestimate growth. It's better to beat budget than miss it.
Step 3: Budget People Costs
People costs are typically 60-80% of a startup's budget. Getting this right is critical. For a deep dive, see our Headcount Planning Guide.
Current Team
Start by documenting your current team with fully-loaded costs:
| Role | Salary | Benefits (25%) | Total Monthly |
|---|---|---|---|
| CEO | $150,000 | $37,500 | $15,625 |
| CTO | $160,000 | $40,000 | $16,667 |
| Sr. Engineer (x2) | $300,000 | $75,000 | $31,250 |
| Designer | $120,000 | $30,000 | $12,500 |
| Current Total | $730,000 | $182,500 | $76,042 |
Planned Hires
Add planned hires with realistic start dates. Remember that hiring takes time—a senior role typically takes 3-4 months from posting to start date.
Sample Hiring Plan
Account Executive
Start: March 1
$10,417/mo
Senior Engineer
Start: May 1
$15,625/mo
Customer Success Manager
Start: July 1
$8,750/mo
Step 4: Budget Operating Expenses
After people, budget your operating expenses category by category.
Fixed vs Variable Expenses
- Fixed: Rent, insurance, core software subscriptions—these don't change month to month
- Variable: Cloud hosting, marketing spend, professional services—these fluctuate
Key Categories to Budget
Software & Infrastructure
List all your subscriptions. Check for annual renewals that will hit in specific months.
Typical: $3-10K/month for early-stage
Marketing & Sales
Tie this to customer acquisition goals. If you need 100 customers at $3K CAC, budget $300K annually.
Typical: $10-50K/month depending on growth goals
Professional Services
Legal, accounting, contractors. Estimate based on planned activities (fundraising, audits, etc.).
Typical: $2-8K/month; spikes during fundraising
General & Admin
Office, travel, team events, insurance, miscellaneous. Often underbudgeted—add a buffer.
Typical: $3-8K/month
Step 5: Reconcile and Iterate
Now add it all up and compare to your constraints.
Sample Annual Budget Summary
Does It Fit Your Constraints?
In this example, average monthly burn of $60K with $2M in cash gives you 33 months of runway—well above the 18-month target. You might choose to:
- Invest more aggressively in growth (marketing, hiring)
- Keep the buffer for unexpected opportunities or challenges
- Accelerate the plan if you're confident in execution
If burn exceeds your constraints, you'll need to make trade-offs: delay hires, cut marketing, or raise more capital.
Breaking It Down by Month
An annual budget needs monthly detail to be useful. This is where you'll catch issues like:
- Months where multiple hires start (burn spikes)
- Annual payments that hit in specific months
- Seasonal patterns in revenue
- Cash crunches before revenue ramps
Spreadsheet Structure
Set up your spreadsheet with months as columns and categories as rows. Each row should have annual totals that roll up. Use formulas so changing one assumption (like a hire date) automatically updates all dependent cells.
Next Steps
Once you've built your budget, the real work begins: using it.
Share With Your Team
Department heads should know their budgets. This enables faster decisions and accountability.
Set Up Monthly Reviews
Block time each month to review budget vs actuals. Understand variances and take action.
Build Scenarios
Your base case isn't guaranteed. Build best and worst case scenarios to understand your risk. See our guide on scenario planning.
Plan Quarterly Refreshes
Update your forecast quarterly (or consider rolling forecasts). Circumstances change; your budget should too.
Key Takeaways
- 1Start with constraints—know your runway target before budgeting
- 2Be conservative on revenue—most founders overestimate
- 3People costs are 60-80% of spend—get headcount planning right
- 4Break it down monthly to catch timing issues
- 5A budget only works if you use it—set up monthly reviews
Need Help Building Your Budget?
Eagle Rock CFO builds budgets, forecasts, and financial models for seed and Series A startups. Get the financial clarity you need to make confident decisions.
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