Why activity-based budgeting (ABB) matters to a first-time founder
Activity-based budgeting (ABB) starts with the work your company expects to do instead of simply adjusting last year’s figures. For a young business with little history, it shows which tasks use cash and whether expected demand supports planned hiring, marketing or support costs.
Examples of activity-based budgeting (ABB)
A delivery start-up expects 12,000 orders next quarter. Each 1,000 orders needs about 40 hours to onboard couriers and 25 support hours. The company budgets for the people and software needed to do that work, then adds other necessary costs. Its budget now follows expected order volume instead of an arbitrary percentage increase.
Common misunderstanding
ABB does not mean giving each team money based on how busy it looks. Start with the result you expect, list the work needed to achieve it, then estimate the resources that work will use. ABB can mean other things, so write out activity-based budgeting when the financial meaning is not clear.
When to use it
Use ABB when measurable work drives your costs and last year’s budget is a poor guide, such as during fast growth, a launch or a change in how the business operates. It can take too much effort for a very small company, so focus on the few activities that drive most spending.