During the early days of any startup, founders are often heads-down building product and chasing their first sales. It’s a time of intense focus on validating the problem, refining the solution, and securing those critical early customers. Amid all the excitement, financial planning often takes a back seat. There’s a common mindset of “as long as there’s cash in the bank, we’re fine” — but that approach can lead to costly surprises that threaten momentum. That’s where budgeting comes in. I’m a firm believer that every company – even in the earliest stages – should have a budget to get a clear view of your runway, help avoid missteps, and ensure spending aligns with the company’s strategy.
In this article, we’ll focus on budget building for early-stage startups that are still working to validate product-market fit.
Step 1: Keep it Simple
The key to building, and maintaining, your budget at this stage is to keep it simple. You don’t need a 20-tab financial model — you just need something that gives you visibility into what’s coming in, what’s going out, and how long your cash will last.
At this stage, I usually recommend building a 2 or 3 years budget (broken out by month).
Step 2: Create a Hiring Plan
People are often a start-ups largest expense category so it’s worth being a little more detailed in this section. Map out who’s on the team today, when you’re planning to hire and what each role will cost. Ensure you include the cost of benefits, payroll taxes, any bonuses/ commissions, salary increases, and any contractor fees so that you have a full picture of your headcount associated costs. Even if you’re just forecasting founder comp for now, it’s important to get it all down so that you can understand the impact of a new hire on your cash-life.
Step 3: Review your Operating Expenses
Include your recurring monthly operating costs, such as:
- Software subscriptions: Slack, Hubspot, Google workspace, O365, Zoom, Github, QuickBooks Online, and others. Just make sure to adjust these as your team grows — most tools scale with users or seats.
- Cloud infrastructure: AWS, Azure, Google. These costs can creep up quickly as usage increases, so it’s worth keeping an eye on trends and setting alerts where possible.
- Rent or co-working space: Whether you’ve got a dedicated office or use shared space, include all recurring facility costs here.
- Insurance, if applicable: General liability, E&O, D&O, or anything else your business requires. If you’re incorporated and fundraising, some of these become essential.
- Recurring professional fees: Bookkeeping, HR support, or fractional sales and marketing support.
In addition to your monthly operating costs, set aside a section for one-time periodic expenses. These are things like branding work, legal filings, marketing expenses, outsourced development, conferences, etc. It’s easy to forget these, but they can have a big impact on your cash flow — especially in a tight runway environment. Keeping them separate in your budget makes it easier to see which costs are recurring and which are tied to specific milestones or projects.
Step 4: Forecast Your Revenue and Grants
If you’ve started bringing in revenue, it’s worth including it in your budget — just keep your assumptions grounded. Early revenue can be lumpy, unpredictable, and slower to ramp than expected. Focus on building a conservative forecast based on what you know today, not what you hope will happen next quarter. If you’re still pre-revenue, that’s fine too — the key is to be honest about where you are. Since early-stage revenue is normally founder led and unpredictable, most companies don’t need a bottoms up approach when determining revenue at this stage. That comes when you have a more repeatable sales motion.
If you’re eligible for government grants or innovation funding (like SR&ED in Canada, IRAP, etc), those should be included in your revenue planning too — but keep them separate from customer revenue in your budget. Grants can be a great non-dilutive funding source. Treat them as a bonus until confirmed, and avoid building your core budget around funds that aren’t locked in yet.
Step 5: Add Capital Purchases
If you’re buying equipment — like laptops, servers, or tools — or carrying inventory for a physical product, make sure these costs are called out separately in your budget. These can have a big impact on your cash, especially in the early days when every dollar counts. Hardware startups in particular should keep a close eye on these numbers, as both inventory and capital expenses tend to add up quickly. Keeping them broken out from your monthly operating costs will give you a clearer picture of your actual burn.
Step 6: Build Your Income Statement/Cash Runway
Once you have the inputs above, you can build your income statement on a cash basis. Start by listing your incoming cash flows such as expected revenue and grants, then subtract your operating expenses, headcount costs, and any one-time or capital expenses to get a sense of your monthly burn and cash life. I normally recommend preparing an income statement, balance sheet, and statement of cash flows on an accrual basis but in the early days, the key is simplicity. You can always layer in the full financial statements as your business grows.
Step 7: Review Your Budget Regularly
Your budget isn’t something you build once and forget –it’s a living, breathing workbook. In the early days, things change fast — new hires, unexpected expenses, slower revenue — so it’s worth reviewing your numbers at least quarterly. That doesn’t mean building a brand new model every time. Just revisit your assumptions, update actuals, and make small adjustments so you’re always working with a clear view of where things stand.
Budgeting in the early stages doesn’t have to be perfect — it just has to be useful. A simple, well-structured budget helps you stay focused, stretch your runway, and avoid surprises. Most importantly, it lets you make smarter decisions with the limited resources you have.
If you’re an early-stage founder trying to get your financial house in order, we can help. At BrightIron, we support startups with everything from managing your finances, building forecasts, managing HR, and scaling your sales and marketing.
