Owners, Founders, Directors: Here’s How to Build Cushion Into Your Budgets
Budget cushion is risk mitigation.
You're a founder, owner, or director building your budget. You've wrestled every number into place, assigned every dollar with care, and created what appears to be a perfect budget model. But then, the inevitable happens: a surprise. An unexpected vendor price increase. A key hire that needs to start two months earlier than planned. A market shift that impacts your pricing strategy.
Suddenly, your budget is blown - and not because your accounting is off, or because you spent irresponsibly. It’s because you didn’t plan for the unknown unknowns that impact every business.
If you're coming from an operational background, this moment could feel like a failure. It's not. It's just that budgeting requires a different mindset than you're used to – one that embraces strategic uncertainty rather than operational precision.
So, let’s dispel the myth that budgets should be planned down to the letter. Doing so makes your budget functionally useless. Don’t forget - a budget is strategy in action. To ensure that your budget works for your company, not against it, it must have cushion. The real question is how to build a cushion, communicate it, and deploy it strategically.
Read on to learn how. We’ll cover:
How to think about cushion as risk mitigation
Our fundamental rules for building cushion into budgets, with examples of how to do so
Guidelines for releasing cushion - because holding cushion too long can stymie growth too.
Cushion is Risk Mitigation
The goal of cushioning is straightforward: to mitigate risk without mitigating so much that you shape a different outcome.
You want protection from volatility, not a budget so padded that it obscures the true financial picture of your organization.
Consider Maya, a first-time founder at a SaaS startup, preparing her first annual budget post-seed raise. Having witnessed the chaos of previous years – unexpected server costs, emergency contractor hires, last-minute conference sponsorships – she decided to build in a substantial cushion. She added 30% contingency to nearly every line item. Marketing got an extra $50K "just in case." Engineering received padding for "potential tool upgrades." The customer success team was allocated funds for a training program that had yet to be fully proposed to leadership.
Her budget sailed through approval. The board loved the conservative approach.
But six months in, something unexpected happened: nothing went wrong. The company hit its targets, but with massive underspend. Department heads, seeing their inflated budgets, felt no urgency to negotiate vendor contracts or find efficiencies. Why optimize a $15K software subscription when you have $40K budgeted? The marketing team delayed strategic initiatives, knowing they had plenty of runway. When Maya presented the mid-year financials, the board was confused. Were the original projections wrong? Was the business underperforming? Had teams simply not executed their plans?
The excessive cushion hadn't just protected against volatility—it had created a distorted reality. Leadership couldn't see the company's true operational efficiency. Investors questioned whether management understood their own business. And most damaging, the inflated budget had subtly changed behavior, removing the creative tension that drives smart decision-making.
The following year, Maya recalibrated. She built cushion strategically: 10-15% in categories with historical volatility like customer acquisition costs and cloud infrastructure, minimal padding in predictable expenses like salaries and rent, and a centralized contingency fund for true emergencies. This time, when the mid-year review came around, the numbers told a clear story. The business was healthy, teams were accountable, and the cushion was there when a cybersecurity incident required immediate response—exactly as intended.
The Fundamental Rules
You need both a revenue and an expense cushion. Surprises don't confine themselves to one side of your P&L. Revenue can fall short of projections. Expenses can exceed expectations. Building cushion into both sides of your budget creates comprehensive protection.
Know thyself. If you're a founder, director, or owner managing your own budget, this advice comes with a special caveat: know yourself. If you have a tendency to spend whatever's available, double your cushion. The discipline of budget management requires honest self-assessment. Building in extra protection against your own optimism or spending tendencies is not failure, but wisdom.
Release cushion strategically. As the year progresses and more of your assumptions prove true, you gain certainty. This is when you can strategically release cushion, turning it into fuel for new initiatives or improved financial performance.
Smart Cushioning In Practice
Real examples of how we’ve helped clients build a smart level of cushion into their budgets.
Revenue Cushion Through Enrollment Planning
An education organization knew they couldn't predict enrollment with perfect accuracy; no one can. So instead of pretending they could, they built in a 5% enrollment cushion. If they projected 1,000 students, they budgeted for 950. This meant they could lose 5% of their enrollment and still pay the bills.
Here's what made this work: they didn't just pick 5% out of thin air. They looked at their historical enrollment data and saw that's where the variance tended to land year after year. The cushion gave them real breathing room without painting such a pessimistic picture that they'd have to cut strategic investments.
Revenue Cushion for Market Flexibility
A B2C tech company was planning to sell its product at $10 per seat. Sounds straightforward, right? But what if a competitor drops their price, forcing a match? What if leadership wants to run a promotional campaign? Or a major client negotiates a volume discount? How can this company derisk market flexibility at the pricing level?
One approach: keep your pricing at $10 per seat, but budget revenue at $9.50 instead. That extra 50 cents might not sound like much, but it's a flexibility fund. With that built-in buffer, this company can pivot quickly without blowing up the operating budget.
But here's the trap: cushion too much and you're lying to yourself. If you budget at $8 but consistently sell at $10, you'll be high-fiving yourself for "beating budget" while missing the fact that your pricing strategy is actually working better than expected. You want protection, not delusion.
Expense Cushion Through Conservative Hiring Timelines
This one's surprisingly practical. You know that key marketing role you need? You think you'll have someone in place by July. Budget for May instead.
Why? Because hiring always takes longer than you think, but sometimes it happens faster than expected. If you budget conservatively, you're protected either way. The search takes four months instead of two? You've got room. You find the perfect candidate immediately, and they can start early? Your budget already accounts for it.
Plus, budgeting for an earlier start date means you're not scrambling to get approval when you find someone great who's available now. You've already built the cost into your plan.
Guidelines for Releasing Cushion
Knowing how to release cushion is just as essential as knowing how to create it. Start releasing cushion as you gain more certainty about the accuracy of your budget and forecasting predictions. As key assumptions are validated – enrollment numbers materialize, pricing holds firm, hiring timelines become clearer – you can strategically deploy previously reserved cushion.
This approach transforms cushion from a passive safety net into an active management tool. It allows you to create optionality that can be activated at the right moment.
The Bottom Line
Budget cushioning transforms your financial plan from a rigid constraint into a flexible strategic tool. Yes, it's tempting to assign every last dollar, to squeeze every ounce of precision from your projections. But that temptation leads to constant budget revisions, strategic paralysis, and unnecessary stress.
Build cushion on both the revenue and expense sides. Know how you – and your team – respond psychologically to budget cushion, and adjust your plan accordingly. And release your cushion strategically as certainty increases.
Your budget should be a tool for navigating uncertainty, not a straitjacket that restricts your ability to respond to reality. Why? Because budgets support strategies - and they don’t determine them.
Whether you are a new founder building a budget for the first time or an experienced operator handling an increasingly complex organization, Level has a Pro who can help with that. Give us a call, and we’ll connect you with a finance pro who can create a budget for your company’s stage, industry, and vertical today.