Budget based on cash in hand, not committed revenue or receivables
Operating budgets should be set based on actual cash in the bank, not pledged donations, signed contracts, or accounts receivable. When revenue depends on external parties keeping their commitments, delays can cascade into organizational crisis even when the money eventually arrives.
When to use
When setting budgets for any venture dependent on external funding - nonprofits relying on donations, agencies waiting on client payments, or startups with committed but not yet received investment.
Don't do this
Planning expenses based on expected revenue, leading to payroll stress, damaged staff morale, and organizational instability when payments are delayed.
3 Founders Who Did This
Announced $1.5M funding and scaled to 100-250 employees, but the payment was late to arrive or didn't go as planned
Operated on accounts receivable model, budgeting against committed donations rather than cash in hand. A major donor's check arriving four months late created staff morale issues and eroded confidence in leadership.
Operated on thin margins with VC-funded hyper-growth model, had only $13.4M raised vs competitors with $96M-$130M