Amid the COVID-19 crisis, the finance team faces some harsh realities and unique challenges as this year’s budgeting season kicks off. Traditionally starting in Q3, the office of finance must begin the critical budget process with incomplete and potentially inaccurate data and a lack of engagement from their business partners.
The CFO and his team, however, know that this will be the most challenging budgeting season yet but they must carry on as the December budget presentation to the board comes up quickly. These teams need to face the challenges that follow a unique budget season, understand the obstacles they face, and get creative about solutions if they are to achieve their end of the year deadline.
Budgeting for Next Year – Getting Started Today
Much of the business is focused on the current year’s objectives, not those for next year. Finance can’t define a useful budget on their own, though. They need to consider what other executives need to understand their current budget performance and move forward from the existing forecast.
Using a steady-state budget can help streamline the budget process. By taking the existing budget/forecast numbers and reconciling with the actual numbers from the first six months will give you a place to start.
A steady-state budget is by no means perfect. It pulls the presumptions and line items used to build the forecast and an incomplete set of actual data from only half of the current year. Perhaps its greatest flaw, however, is the fact that it assumes next year’s goals will be the same as this year’s – no growth and no change.
However, when it comes to putting a stake in the sand, a steady-state budget at least gives you a place to begin discussions with other business owners. That becomes important as you kick off the budget process with your business partners.
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Getting the Business Involved
Once you have the beginnings of the budget in hand, in the form of the steady-state, the CFO can go to the other business leaders to begin the planning process. Having someplace to start from and something to react to will make the task less daunting.
Finance must remember that the rest of the organization is not focused on operational concerns for next year. Most business leaders will be knee deep in their current goals, projects, and staffing. Sales teams will be focused on hitting numbers for Q3 and Q4.
It’s likely that the process will bring many questions from the executive team. They’ll likely want to understand how they are performing against the current budget and headcount goals. Helping other leaders understand where they sit from what they planned previously gives them information to refine their numbers for the next year.
Once finance has established where different departments are and what their budget for next year would look like if nothing were to change, the discussion about goals and growth can begin. At this point, a “Budget Kickoff” meeting with the senior leadership team is recommended. What needs to happen next year that isn’t happening this year? What are industry or economy circumstances that might affect your cash flow? What resources will be needed to reach the company’s goals? Guiding executives through these questions will provide guide rails they can follow to get down to the numbers needed.
Of course, beginning in this way can cause other issues. If an organization is still using Excel for budgets, adapting and changing from a steady-state into the real deal can create more headaches than it solves. Using software solutions that are flexible and adaptive, while also promoting collaboration with other leaders, simplifies the process.
Don’t Forget Sales
When it comes to planning for next year, the challenges with sales are a double-edged sword. The sales team is hyper-focused on finishing out the year strong and meeting targets. At the same time, they are a critical piece to the budgeting process, especially in software and SaaS companies where sales drive expenses.
Much like other executives, having a set of questions to work with the sales team can help prevent them from stonewalling finance during budget development.
Understanding the sales team’s current state – are they meeting goals, are they at capacity, are they hitting a win rate that is appropriate for your vertical – gives you a place to start evaluating and developing a forecast. If the sales team isn’t hitting their current goals, even a steady-state budget won’t meet the needs of the organization without some changes.
Budgeting is the most important task finance is faced with, but in the middle of the year and during a pandemic, it’s not even on the business’s radar. Insight from other executives, though, is critical to developing a realistic and meaningful financial plan for the coming year – one that is palatable to the board come December. While it isn’t an easy task, being creative and meeting your partners half-way will get them into the swing of budget season as well.