One of the main reasons why fintech start-ups fail is the fact that they pay little attention to the nitty-gritty of budgeting. Uses of budget to fintech start-ups is not fully grasped by techie minded entrepreneurs as typified by the comment of a new fintech startup owner therefore, we can no longer leave the idea of budgeting for fintech entrepreneurs to meddle with.
Someone with accounting and finance background in the fintech industry will have to provide a sort of guide to fintech start-ups and that is where this article fits in.
Years ago, I wrote about the functions of budgeting and this article on the uses of budgeting in fintech startups is a complement to that article. A lot has changed since that article was written.
So this post will incorporate modern flavour and also briefly comment on the concept of beyond budgeting and why it should be given serious consideration by technology companies.
Budget means different things to different people thereby giving rise to some dysfunctional budget behaviours. In a bid to solve this problem, Hope and Frazer developed the concept of beyond budgeting which in its simplest form is advocating that managers should completely abandon traditional budgeting in favour of more ad hoc processes.
10 Uses of Budget to Fintech Start-ups
1. Helps to point our actions towards achieving organizational objectives
Budget acts as compass that helps direct the path of fintech start-up owners in the ever dynamic wilderness of financial technology. Without budget, the fintech start-up may significantly drift away from the overall objective of the company.
2. Forces us to plan
Many times we don’t realise how complex our intending action is until we actually doing something. Most fintech entrepreneurs take for granted the complexity of the venture they are going into because adequate plan has not been put in place from the beginning. Budgeting helps bring out potential hurdles that must be planned for from the word go.
3. Allocation of scarce resources
Fintech entrepreneurs often open shop with little or nothing as capital. This little resource will no doubt be wasted without sticking to an asset allocation plan. This asset allocation plan is contained a financial technology start up company.
4. Acts as authorization
Although most IT entrepreneurs act on a solo basis and by that do not really require authorization for most action. This however does not take away the fact that even as solo-preneurs that we still need to be disciplined in our dealings. A serious minded fintech entrepreneur will always refer back to his or her budget as a guide.
5. Medium of communicating ideas and plans
There is no better medium to communicate business ideas than through a well prepared budget. Fintech start-ups uses budget to clearly communicate their ideas and plans to their strategic partners- mostly banks.
6. Coordinates activities
One of the main functions of budget is that it helps coordinate activities of different parts in such a way that goal congruence will be achieved. Through budgets, different sections of a fintech startup will be well informed of what the other department expects from them.
7. Spurs employees into doing things that will help improve their performance
Budget acts as a motivating tool to employees. Programmers working for fintech will be motivated to meet an already agreed challenging but attainable target that is contained in a budget.
8. Provides solid base for responsibility accounting
People are made responsible for their actions if they know what is expected of them from the very beginning.
9. Helps in fairly evaluating employees
Employee evaluation can be tricky. Things even get harder when there are no set standard or target that employees are appraised based on. Traditionally, budgets contain estimated targets that employees’ performances at the end of an agreed period will be assessed.
10. Builds the foundation for system of control
The nature of the business that fintech startups are into makes it suicidal not to have a robust control in place. A budget acts as solid foundation upon which other control measures are built.
Comment on beyond budgeting
Due to the fact that traditional budgeting has some serious drawbacks, the idea of beyond budgeting was hatched and propagated. Proponents of beyond budgeting argues that time should not be wasted preparing a document that no uses in reality.
Beyond budgeting tends to favour the concept of rolling budget and zero based budgeting. Considering the fact that things change rapidly in fintech sector, it will not be a bad idea to give beyond budgeting a second thought.