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How to Prepare a Comprehensive Budget: The Essential Foundation for Your Fund

Each year, fund managers must contend with changes in regulatory, reporting and technology requirements that create additional expenses. As the costs required to launch and run investment funds continue to rise, a detailed approach to fund planning becomes even more critical. That’s why preparing a comprehensive budget is an essential part of your fund’s success.

Whether it’s for a first fund in a new jurisdiction or the first fund for a new manager, a detailed budget provides a two-fold benefit. This preparation helps avoid early-stage financial pitfalls and leads to more informed choices throughout the fund’s life.

A carefully constructed budget will help you predict cash needs, generate accurate financial statements and create better estimates for your break-even point. It will also allow you to maximize the effectiveness of internal resources by determining which operations are best suited to outsource to a trusted partner.

With those benefits in mind, we have provided steps you can take to prepare a thorough budget during a fund’s initial planning stages.

List Your Essential Start-Up Costs

As you break down the essential start-up costs for your fund, keep in mind that those expenses can vary widely due to factors such as physical location, registered location, and service provider choice. Some essential start-up costs include:

  1. Legal

  2. Compliance / regulatory filings

  3. Marketing

  4. Consultants

  5. Prime brokerage

  6. Software and technology

  7. Fund administration

  8. Data and system security

  9. Audit and tax

  10. Office set-up

  11. Fundraising

When reviewing these costs, be aware that some are management company expenses, while others are fund level expenses. Your accounting partner can explain which expenses fit in each category.

Determine Your Fixed Costs

If fund managers want to make more informed decisions, they must identify fixed costs for both the management company and the fund. As costs have increased over time, fund managers have focused on ways to keep fixed costs low while still providing a strong offering to investors. This has led to a growing number of fund managers outsourcing more operational components of their firms.

For example, instead of hiring a CCO, fund managers may engage an experienced compliance firm to assume these duties. Another consideration is software and technology, which can be expensive to purchase, adopt and maintain. Instead, many fund managers reduce those costs by outsourcing their middle and back-office operations to experienced service providers.

Planning for Your Fund’s Success

With a detailed understanding of the specific expenses affecting their fund, investment managers can make informed choices and plan accordingly. By taking the time to prepare a full budget, they increase their ability to operate a successful fund, providing value to investors and creating long-term success for the firm.

Get in touch with a member of the SFS team to learn more about our service offerings and our personal and flexible service approach.


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