5 reasons budgets stumble out of the gates

{callout}

TL;DR

Budgets go sideways for 5 structural reasons:

1. The numbers aren’t grounded in a real plan
2. The model hides the real business drivers
3. The model is too rigid
4. Cash and constraints are afterthoughts
5. Ownership is misaligned across the organization

{/callout}

The hard truth of budgeting

Budgeting is hard, expensive, and time-consuming. But it’s also the single most powerful tool a company has to drive strategy and accountability.

That’s because it forces tradeoffs—where to invest, who to hire, how much to spend.

A good budget aligns the business around those tradeoffs. But with so many variables in motion and so many stakeholders involved, it’s easy for the process to drift off course early. You can save yourself a lot of pain by learning what not to do from the start. Because most budget failures are structural, not procedural.

Let’s break down the five most common reasons budgets stumble out of the gates.

1. The numbers aren’t grounded in a real plan

This is the most common failure point, and one of the hardest to spot. Just because a model ties out doesn’t mean it reflects a real operating plan. Finance can get so deep in the numbers that they lose sight of how the business really runs and how decisions actually get made.

And when that happens, the budget turns into something people defend, debate, or quietly ignore. It may look like a plan, but it doesn’t function like one.

When the budget becomes the scoreboard

A big part of the problem is that budgets get confused with goals. Leadership sets top-down revenue targets—often aggressive ones—then works backward to make the rest of the model fit. Expenses are trimmed until EBITDA looks good, and that becomes the “plan.”

But it’s not a plan. It’s a scoreboard.

Worse, those same numbers get reused for performance management and incentives. One set of figures is expected to do everything: guide the business, measure success, and determine bonuses. And when those stretch targets aren’t hit, trust in the budget erodes. Misses devolve into finger-pointing instead of a learning opportunity.

You can usually spot the signs:

• Revenue assumes best-case conversion, retention, and pricing
• Cost savings have no owner or execution plan
• Downside scenarios are modeled, then ignored
• Budget meetings get stuck in debates over account mappings

At that point, no one’s aligned on what the budget is trying to do. It may be mathematically clean, but operationally, it’s a mess.

{callout}

What to do instead: Start with the real plan. Make assumptions explicit, codify operational activities, then let the spreadsheet follow.

{/callout}

2. The model doesn’t highlight real business drivers

Even if the budget is grounded in a real plan, the model itself can fall short simply because it doesn’t reflect how the business actually works.

Call it the “spreadsheet looks right, but tells you nothing” problem. The numbers tie out, but the real performance levers are missing.

Most often, it starts with revenue. Instead of breaking it down into new vs repeat customers, conversion rates and average order value (or separating pipeline from conversion from retention), teams model it as a flat growth rate. It looks tidy, but when revenue misses, no one can say why. And if you can’t explain the miss, you can’t respond appropriately.

The same issue shows up on the cost side. COGS and margin are modeled as static percentages, not outcomes tied to product mix, sourcing, or delivery. If your model says margin improves by 300 basis points, you should know what drives that and who owns it.

You see it most clearly in variance reviews. The budget doesn’t match how the business operates, so the actuals can’t explain what happened. You end up with commentary like:

• “Travel was $40K over.” (Was it hiring? Sales? Escalations?)
• “Margin missed by 2%.” (Was it mix? Discounting? Support backlog?)

That’s narration, not analysis. And it leaves teams guessing when things go off track.

{callout}

What to do instead: Build a driver-based model that reflects the real levers your teams control. Then structure your actuals to match. If your model can’t explain outcomes, it can’t guide decisions.

{/callout}

3. The model is too rigid

After all the effort that goes into building a budget, it’s frustrating when reality starts drifting from the plan—especially early in the year. Pipeline comes in lighter than expected, a project takes longer than planned, and suddenly, the model everyone worked so hard on already feels obsolete.

But that’s normal. Things will always unfold differently than you expect. A budget isn’t a GPS with turn‑by‑turn directions. It’s a compass. It’s supposed to help you adjust as new information comes in.

The problem is that many budgets are built with only one path in mind. There are no predefined triggers for when to change course, and no contingency paths for underperformance or outperformance. Once the plan is locked, everything else has to bend around it.

When teams don’t have clarity on how or when to slow spending—or a framework for reallocating resources mid‑year—they end up improvising. Some groups spend aggressively early, assuming finance will figure it out later. Others clamp down at the first sign of risk and unintentionally starve the business. Either way, the budget stops functioning as a decision tool. It becomes a constraint you react to after the fact.

The culture around variance makes this worse. When missing the budget is treated as poor execution instead of new information, teams defend the original plan rather than adapting it. Variance turns into something to explain away, not something to learn from.

In healthier environments, variance sparks better questions:

• What changed?
• What did we learn?
• What should we do differently now?

You can’t get there if the budget itself doesn’t allow movement.

Rigid budgets also tend to fixate on the wrong signals. Most teams anchor on lagging financial outcomes like revenue, margin, and EBITDA. By the time those move, it’s already too late to respond.

If your plan depends on improving sales productivity, the budget should surface leading indicators like pipeline creation, conversion rates, cycle time, churn risk, and onboarding capacity. Those are what tell you whether the plan is actually working.

{callout}

What to do instead: Design budgets with clear triggers, defined operating levers, and leading indicators so the plan can flex as reality changes instead of breaking the moment assumptions shift.

{/callout}

4. Cash and constraints are afterthoughts

As emphasized by Ryno Blignaut, CFO & Operating Partner at Khosla Ventures, most SaaS businesses should build their reporting around cash in versus cash out.

That sounds obvious. But in most budgets, cash barely makes an appearance. Models are built with the P&L in mind, while the balance sheet and statement of cash flows are largely ignored.

You end up with two parallel universes:

• The P&L universe, where the model looks tidy
• The cash universe, where the business actually lives

You’re in for a rude awakening when these versions of reality clash. You hit plan on bookings, but cash is evaporating behind the scenes. You greenlight a headcount plan, only to realize payroll outpaces collections.

Working capital is your true operating capacity. When it’s missing from the model, you’re flying blind.

The same goes for spend. Budgets usually say how much, but skip over the mechanics. Who gets to spend? When does it need approval? What triggers a reforecast? Without those rules, teams either overspend early or freeze up completely.

{callout}

What to do instead: Build cash and constraints into the plan from day one: working capital, Capex, financing, approval thresholds. Your budget shouldn’t just show how the business grows. It should show how the business stays alive.

{/callout}

5. Ownership is misaligned across the organization

For budgets to function as execution tools, stakeholders need to feel ownership over what’s in them.

Too often, they don’t. And it usually starts with how the plan gets built.

Budgets are built in a vacuum

While the process is pitched as collaborative (finance asks for inputs, functions send back numbers), the actual trade-off decisions happen somewhere else. Department heads end up getting “their” budget back as a finished product.

Now they see it as an assignment rather than a shared plan. And when things inevitably drift from the model, they don’t feel as responsible for adjusting course.

Execution risk is assumed away

Without true operator buy-in, the budget starts to miss real-world constraints. That’s how you end up with plans that look fine in Excel but fall apart in execution:

• Launching products with no new headcount
• Doubling pipeline with the same SDR capacity
• Improving SLAs while cutting support

These are mismatches between ambition and capacity—ones that would’ve been caught with more feedback and shared ownership. But when the model gets finalized in isolation, those gaps get smoothed over.

Accountability turns into compliance

Teams that don’t believe in the plan won’t keep it front of mind. The budget becomes something to reference in QBRs, not a tool that guides day-to-day decisions. Real accountability only happens when teams believe the plan is executable and believe they had a hand in building it.

{callout}

What to do instead: Build shared ownership between finance and operators from the start. That means surfacing constraints early, making tradeoffs explicit, and involving the people who will actually execute. If the plan feels like theirs, they’ll commit to making it happen.

{/callout}

Good budgets are about alignment rather than perfect precision

A budget isn’t a crystal ball. It’s a way to create clarity around priorities, constraints, and options. It should be a living decision system that gives your team a shared understanding of where the business is headed, what it will take to get there, and how to course-correct when things inevitably change.

If you’re interested in diving deeper, check out Aleph’s budgeting ebook for a tactical walkthrough of how high-performing teams approach their budgeting process.

And if you want to keep the conversation going, you can find me on LinkedIn or read more at karlongroup.com/blog.