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Planning and Budgeting Are Broken. Here’s How To Fix Them.

August 17, 2023 5 min read

“The worst group project ever”

It’s that time of year again! Like many other finance teams, late summer is when we kick off our resource allocation process. Whatever you call it – “annual planning,” “budgeting,” or (as I’ve heard it described once), “The worst group project ever” – it is a vitally important but often challenging exercise.

Operators can feel slighted and confused if their requests aren’t funded. Finance teams may resent having to run a time-consuming process that forces difficult trade-offs without knowing that they have made the right decisions. It should be a profoundly strategic process where all stakeholders work as a team to make decisions and allocate resources to shape the future success of any company. Often, however, it can feel like a frustrating and opaque exercise that leaves no one satisfied.

It doesn’t have to be that way! Through hard and painful experience, we have been able to turn planning into something that works well and generates (mostly) positive experiences for everyone involved. The linchpin is the connection between finance and their operating teams.

Here are the three big keys that helped us make the process better.

Center around a shared vision for the future

The single biggest mistake operators make when submitting funding requests is simple: They don’t connect their ask to the company’s “North Star”. If you can’t tie what you are asking for into our overall strategy and direction, your request is far less likely to get funded.

Both sides of the relationship bear a responsibility here. Finance teams need to work with the company’s leadership to express a clear vision for the future. And operators need to embrace and understand that strategy, and show how their proposed budget and priorities will help drive progress. Often, this critical layer of shared planning is missed, meaning that people are not really grounded in the same understanding.

So don’t just skip over this step and assume that people “get it”! Take the time to ensure everyone participating in the planning process understands what the company’s objectives are for the next 12-36 months. Clearly articulate the goals and priorities? Maybe it’s as simple as: “Right now we are at $[x] M of revenue and we want to be at $[y] M with a [z]% profit margin.” Or it could be something like: “We want to maintain our share in our core market and expand into new overseas segments while simultaneously improving our profit margins.” Whatever it is, it should be clear and simple to everyone involved.

Don’t just ask for money and expect your finance team to understand the value of your investment. How will your request help the company get to its North Star? What will this unlock and how does it connect to the other things happening across the company? Think in terms of a story, not just in terms of disconnected numbers and facts.This sounds basic but an astonishing number of funding requests simply don’t clear this bar.

If you don’t know where you are trying to get to, your chances of getting there are slim. Across the company, everyone needs to be grounded in the same shared vision of the future.

Reach towards each other

Another challenge that derails or restricts the resource allocation process: When finance teams and operator teams don’t understand each other. It isn’t always easy, but operators need to think and communicate with a common language that finance can understand, while finance needs to be more grounded in the reality of the teams they support.

Part of the problem is that many think of planning as a season… something that has a beginning, a middle, and an end. But while the planning season is important, it works best if it is layered over a real relationship based on mutual understanding.

Finance leaders should connect with the operators and business unit leaders year-round, not simply around planning and budgeting season. It is important to be curious and engaged about the inner workings of the entire company. Too often, CFOs and their teams sit back and wait for operators to come to them. We have to lead the way, creating strong and vibrant relationships getting to know the operators, their business, and their needs.

Operators must understand, and be able to articulate, the key levers within their business. Remember, numbers aren’t just the language of finance; they are the language of business. Which numbers matter to you? To your division? To the company? You need to see yourself in the numbers and then paint that picture for the finance team!

Say you lead a product team and want additional developer headcount to support your roadmap. Simply telling your finance team, “I need these because we want to make the product better and more competitive in the next release wave” isn’t enough. Compare that with: “If I get these new developers, we will be able to bring features A, B and C to life… and the data shows that these additional capabilities will unlock new customers and allow us to increase our attach rate for product Y by amount Z.”

It’s simple. The relationship between finance and the operating teams works best when both sides reach towards each other throughout the year. CFOs need to be intellectually curious and engaged enough that they learn about the business units, and business leads need to be able to express their needs in ways the finance team can understand.

Connect your plans to other parts of the business

No part of the business is an island. Your choices and actions impact others. For example, no CMO can operate or plan without considering the needs of Sales. If you see beyond your silo, you may spot an opportunity to have an impact that would otherwise escape you. Demonstrating added value, aligned with cross functional priorities will make it far more likely that you get your request funded.

As finance, part of our job is to make sure that the plans and investments proposed by the teams across the company work together. So, for instance, if the company is trying to move upmarket, Product and Engineering must build features that are relevant to the target customer segment, while Marketing should build a go-to-market approach suited to reach those higher-end consumers.

The best funding requests connect clearly to other investments. I once had a budget request from a product team to support a new “change your own password” feature. The team leader had heard from a colleague in the Support organization that they were receiving a high volume of calls from users who were trying to reset their password. The new feature would more than pay for itself in lower support costs. It was one of the easiest funding decisions I ever made!

In finance, we care about making the best possible investment decisions. That often means identifying efficiencies and creating opportunities to take those savings and invest them in critical bets for the company. If you can save or create those opportunities by removing spend in one area of the company, that gets finance’s attention!

Remember: We all want the same thing!

The planning process can sometimes feel adversarial. It shouldn’t be that way. Trust me: No finance professional is looking to starve the company and limit the chances for success! We all want the company to do well and achieve our shared goals

So how will you know if your planning process is working the way it should? No two companies are alike, so success may look a little different for you than for me. But if you reach clear, reasoned decisions on funding and resource allocation that tie in well to the corporate strategy, and everyone involved ends up feeling like they understand each other and the needs of the business a bit better, you are making progress!

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Helene Wang is the CFO of Ironclad.