Budgets, capex and opex
A budget is the promise your team makes to the company about money: what you will spend, when, and on what. This lesson shows you how to build Mangrove's 2027 technology budget from the bottom up, decide which costs become assets, and explain the gap between budget and actual every month.
By the end you can
- Walk through the budget cycle, from top-down targets to monthly reforecasts
- Cost new roles with a fully loaded rate, real start dates and a vacancy factor
- Tell capex from opex, and say how depreciation and amortisation move cost into later years
- Explain when software development can be capitalised under IAS 38 and US GAAP, and why SaaS set-up costs are often expensed
- Calculate budget vs actual variances and split them into price, volume and timing
The everyday picture
Think of a family planning next year. Rent, food and phone bills come every month, so they plan those month by month. They also plan to buy a used car for $15,000 in March. In their heads the car costs about $250 a month over the five years they will drive it, even though the cash leaves the bank in March.
Their daughter starts school in September. The fees are $300 a month, so this year costs four months, $1,200, and next year costs twelve, $3,600. Every month they check the bank statement against the plan and ask why a line is off: prices went up, they used more, or a bill arrived late. A company budget works the same way: monthly running costs, assets spread over their life, start dates that decide this year's cost, and a monthly check of plan against actual.
The budget cycle
A budget is the approved plan for next year's spending, by team and by month. At Mangrove the financial year is the calendar year, and it is October 2026, so teams are building the 2027 budget. The cycle has four planning steps and two tracking steps.
- Targets from the top. The CFO turns the company plan into envelopes: revenue, profit, and a limit for each function. For technology the CFO gives an opex limit and a capex limit.
- Bottom-up plans. Each budget owner costs what their teams need, line by line, with a finance business partner.
- Challenge. Finance compares the sum of bottom-up plans with the envelopes. The gap is closed by cutting, delaying or making the case for more. Plans go round this loop two or three times.
- Approval. The board approves the budget in December. From then on it is fixed: it becomes the yardstick for the year.
- Actuals vs budget. Every month, after the books close, each owner gets actual spend against budget and explains the big gaps.
- Reforecast. Each quarter you update the expected full-year result. A reforecast called 3+9 means three months of actuals plus nine months of forecast. The budget does not change; the forecast does.
Last year's numbers are the starting point. In FY2025 Mangrove spent about $28M on technology: $24M of opex in the P&L, plus about $2.5M of hardware and $1.5M of capitalised development on the balance sheet (see The three statements).
Quick check
In July 2027 the cloud bill is clearly heading above budget. What changes?
The budget is the yardstick; moving it would hide the problem. The reforecast tells finance where the year will land, and the variance explanation says why. Waiting until December removes any chance to act.