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Zero-Based Budgeting

As the venture capital market becomes more challenging, some experienced startup executives are turning to an aggressive approach to managing their company’s finances - zero-based budgeting.

This is an approach that can help a company reduce burn rate and push out the cash-out date.

As a firm that provides outsourced financial modeling help to our accounting clients, we’d like to share some information on this particular financial projections process.

Zero-Based Budgeting

What is Zero-Based Budgeting?

Zero-based budgeting is a method of budgeting in which all expenses must be justified for each new period. This means that, unlike traditional budgeting, where budgets are based on past spending levels, zero-based budgeting starts from a “zero base” and every function within an organization is analyzed for its needs and costs.

The goal of zero-based budgeting is to ensure that all activities and expenses are necessary and beneficial to the organization, and to allocate resources in the most effective and efficient manner. This can help startups to reduce waste and increase accountability for spending.

All startups should have projections, but startups facing a difficult economic situation definitely need one!

A roadmap for controlling burn and getting back on track

Financial projections provide a roadmap for the startup’s future financial performance, and they can help to identify potential risks and opportunities. By regularly updating and reviewing the projections, the startup can assess its progress and make adjustments to control cash burn. 

In addition, financial projections can be an important tool for communicating with investors and other stakeholders. By providing a clear and detailed picture of the startup’s financial performance, the projections can help to build confidence and trust, and they can provide a basis for discussions about investment and collaboration. This is very important when a company is struggling, as investors will be watching closely to see how the management team responds and manages the company’s finances. 

Overall, having a detailed set of financial projections is an essential part of running a successful startup, and it can help to manage through turbulent times.

Other budgeting advice for startups in a downturn / facing difficult times

We’ve written about what startups can do when entering a recession, and many of those lessons apply to today’s startups as they navigate a difficult funding environment. Here is a summary of our advice:

  • Focus on what you can control. 
  • Quality revenue growth makes up for a lot of problems. 
  • Have a legit cash flow model. 
  • Set up spending milestones. 
  • Have a targeted burn rate (our burn rate calculator can help). 
  • Outsource what you can. 
  • Keep a firm hand on what your employees spend on systems, food, etc. 
  • Focus on efficient operations. 
  • Raise capital when you can, not when you need to. 
  • If you have to cut, cut deeply enough so that you don’t have to do it again. 

Zero-based budgeting is a solid process to use when your startup is facing difficult times. But remember to use it wisely - your employees and executives won’t love the process of rejustifying all of your expenses repeatedly. And don’t forget the human aspect of cutting expenses!

Recent Startup Cash Management Blog Posts

Read our recent blog posts on startup cash management, budgeting, and finance.

The Effects of Bad Debt on Startup Companies – and How to Prevent It
The Effects of Bad Debt on Startup Companies – and How to Prevent It
Updated on Mon, 2 June 2025
Learn about the impact of bad debt on startups and discover proven strategies to prevent it, including assessing creditworthiness and managing receivables.
by
Bryan Long Content Marketing Manager
Bryan Long
Content Marketing Manager
How to Get the Best Bookkeeping for Your Startup
How to Get the Best Bookkeeping for Your Startup
Updated on Mon, 5 May 2025
Learn how to get the best bookkeeping for your startup. Expert tips, DIY steps, and why professional bookkeeping is crucial for growth and VC funding.
by
Kruze Consulting
Kruze Consulting
How Should You Treat Short-Term Treasuries on the Balance Sheet?
How Should You Treat Short-Term Treasuries on the Balance Sheet?
Updated on Mon, 5 August 2024
A lot of startup companies are buying Treasuries directly through services like Treasure Fi, Arc, Meow, and other online services.
by
Kruze Consulting
Kruze Consulting

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