Budgeting in the times of economic uncertainty in startups

Abstract

Originating in the 1920s, budgeting was created to help managers facilitate cashflow and cost control (Cardos et al., 2014). During the past decades, budgeting has faced both criticism and appraisal for its importance in management control systems. Scholars such as Wallander (1999), Jensen (2001), Hope and Fraser (2003) and Blumentritt (2006) have stated their concerns about the limitations and shortcomings of traditional budgeting. The range of criticism is from slighter changes to its complete abolition. On the other hand, Horngren, Datar and Rajan (2012) have highlighted the importance of budgeting: offering the core for management system, providing a scheduling and resource allocation framework for the organization.

The purpose of this thesis is to investigate which budgeting methods startup companies are using and how globally recognized events starting from the worldwide pandemic to an economic slowdown and rising interest rates have affected budgeting in startups.

The findings of this thesis showcase the different approaches in budgeting and how it’s seen in two Finnish startup companies, and what affects the economic uncertainty has caused in budgeting. Especially, raising interest rates has created a situation where venture capital funding is less available and harder to acquire. This has caused more carefulness in two target companies, but however, no changes in budgeting methods used. This can be argued to show an example of a link between budgeting and different areas of the business.