In this special LinkedIn Live/ FP&A Today, join Paul Barnhurst and our all-star panel to answer your questions for budget season based on their decades of experience.
1) The best piece of advice you give – or have been given for a successful budget process over your career?
2) Top Down or Bottoms Up Budgeting?
3) Should we move beyond budgeting?
4) The role AI can play in budgeting?
5) What do you do when leadership comes up with unrealistic numbers?
6) How do you incorporate and manage your finance tech stack during the budget process?
7) What does the budget process in a startup look like?
8)What impact did COVID have on budgeting?
Listen to the expert advice of guests:
- Michelle Govindsamy, FP&A Expert (former Barclays and Hollard Insurance)
- Aaron Sallade, CFO, BiggerPockets
- Zachary Rial, Director FP&A, Peek
- Annette DeYoung, FP&A Solutions Consultant, Datarails
Paul Barnhurst
I just want to start by welcoming everybody to the first LinkedIn live for FP& Today. During today’s episode, we’re gonna discuss budgeting, forecasting, and best practice. And I have with me four distinguished FP&A professionals. And so I’ll just do a quick introduction of each of them. And then we’ll give them a minute to tell a little bit more about themselves. So I’ll start down in the bottom corner for me. We have Annette deYoung. She currently works for Datarails, as an FP&A solution architect and presales. She had 20 years in accounting and FP&A and you know, has been through many, a budget forecast. We’re really excited to have her. And then we have Michelle Govindsamy. Did I say that right?
And she comes to us from the UK. So it’s evening for her. She you know, writes about FP&A quite a bit, has her own blog works doing consulting quite a bit with technology. And so we’re really excited to have her. She’s had a distinguished career in multiple finance roles and then next we have Aaron Sallade is the Chief Financial Officer at BiggerPockets. He’s the CFO there and he’s been through many different forecasts. He’s worked in private equity, investment banking, FP&A, we’re really excited to have him. And then last we have on the panel is Zachary Rial [Director of Finance, at Peek]. Zachary comes to us from salt lake. He works for Peek. He’s a director of FP&A there he’s currently working on his MBA. And so we’re really excited to have him. And next I’m just going give each of our audience just a minute to tell a little bit more about yourself, maybe where you’re from, you know, how you got into FP&A, and then something interesting about yourself outside of, uh, finance that you could share. And this time we’ll start, start with Zach.
Zachary Rial:
Sure. Thanks, Paul. Um, yeah. So as Paul said, my name’s Zachary Rial. I grew up in Portland, Oregon. So the good Pacific Northwest and then I’ve bounced around, uh, across the us for a little while now and, and settled back in Salt Lake City where my wife is from. I got into finance because I didn’t know what I wanted to do and I really liked numbers and problem solving. So I thought I was gonna be an engineer. And I went to do a couple years of engineering and I said, this is awful. I hate it. And one of my buddies was just kind of watching and laughing the whole time. And so he, when I, when I announced that I didn’t like it, he said, why don’t you try finance? And that’s what got me in. And, and I’ve kind of just loved being in the space ever since. Fun or interesting fact about me. I ran track for two years in college and then decided that it was one wasn’t what I wanted to do any longer and switched over and started playing rugby and played rugby for the next two years and had a blast.
Paul Barnhurst:
Great. Thanks Zach. Aaron?
Aaron Sallade:
Great. Thanks Paul. Thanks for me on the show. Uh, so I’m Aaron Sallade, I’m the CFO at BiggerPockets. I joined, uh, going on two years ago. Um, got into finance originally, just based on the practical knowledge that you could potentially apply to your life outside of your career. Um, a little bit, uh, out or something about me outside of work. Um, I’m a Mountaineer, I’ve climbed five in seven summits, so the highest peak on each continent. So, the only two I’ve loved would be Everest and Antarctica.
Paul Barnhurst:
Great. Wow. Fun Michelle. Very cool.
Michelle Govindsamy:
Hi, thank you so much for having me, Paul. I’m so excited to be all the way from representing the UK. I’m a qualified accountant with 15 years in industry specializing in financial institutions. I’ve held senior nontraditional finance roles. So that’s in FP&A finance business partnering across major finance institutions in the UK, as well as in South Africa. My career was predominantly in South Africa, I think, uh, my interesting bit, a little bit about what brings me here is I am a future finance enthusiast, very interested in the profession and how data analytics technology, the impact it’s having on our profession. That what that’s, what brings me here. I blog about it. I speak about it, uh, and connect with me on LinkedIn because that’s where I share a lot of information about what I’m finding out about this profession and how we are evolving.
Paul Barnhurst:
Great. Now I appreciate that Michelle, and it’s an exciting time to see technology and see how FP&A is changing and how it can be an enabler. So thank you, Annette?
Annette deYoung:
Yeah. Hey, thanks, Paul. Annette, I am an FP&A solutions consultant for Datarails. I’ve been here a whopping nine months, prior to being in obviously presales. I spent the last 23 years in finance and accounting, never once growing up that I ever want to be an accountant. I actually fell into it on accident. I know it’s very weird. I was actually a math major when I was in college and I found out I didn’t want to teach. It’s like, what do I do? And then all I could, my, my, I remember my h, college advisor was like, well, give me one class that you really liked. And I’m like, well, there’s that one accounting class. That was pretty cool. 23 years later here I am finance and accounting. I’ve never looked back. I actually absolutely loved it. And of course, until, you know, you get to that point in your life and you, you wanna change and, and that’s where I’m at.
And so something outside of the profession, uh, a good friend of mine and I had been running a nonprofit children’s theater outside of like Chicago area in Illinois. And so we’ve been doing it for 15 years that we are in nonprofit and we believe that every child, no matter what, if they want to explore the art, we, we will write a part for them. We give everybody a role, everybody gets to participate. And so we have really found a lot of, uh, you know, joy in, in just helping kids in inner city kids, especially.
Paul Barnhurst:
That’s great. I mean, that, it’s obvious, you’re passionate about that and always good to give back and do it in a way that, you know, feeds your passion. So that’s wonderful. Thank you for sharing that. So just so the audience knows if you guys have questions throughout, you know, please go ahead and type them in the comments, as I mentioned, and we’ll monitor that and try to cover them. Where we’re gonna start here is obviously is everybody knows either some of you have already started, or you’re gonna soon start budgeting process if you have a typical calendar year of January to December. We’ve all been through the grind, the late nights, the 50 different versions of the, the budget, the leadership coming back at the last minute. Right? A lot of challenges there. So we’re gonna ask our, you know, panel here, a number of questions, and we’re hoping this will, you know, give you guys some advice of how they think about budgeting and some, you know, tips as we’re going through this. So the first question I’m gonna put out there and we’ll start this one with Michelle and just kind of work around is, you know, if you look back at your career and you look at the, you know, the annual budgeting process, what’s the best advice you’ve been given, or, you know, if you can’t think of maybe the best advice, the best advice you give for kind of managing and the budgeting process.
Michelle Govindsamy:
Okay, great. I think if I reflect on it, there’s two pieces of information I’d like to share. So just a little bit, I came from a traditional accounting background into this FP&A finance business path in the world. I was trained as an auditor at Deloitte . And here I am as a finance business partner. And the biggest piece of advice is, and for anyone who’s gone, the accounting route and finds themselves having to do a budget is revenue is not one line in your P&L. It is not something that you look at as one line that you just gloss over the way you do everything else. Revenue is key. Your time needs to be spent understanding your revenue, unpacking your revenue, gathering data about your revenue when it isn’t the budgeting part of the budgeting timetable.
If it is downtime, if you have that, it should all be about revenue. What are your channels? What are your products? What makes this revenue move? And that is where you should be spending your time, second piece of advice. And I can, I can speak on that, take the whole hour, speaking about that. So my second piece of advice is we shouldn’t be surprised that there’s going to be a budget and, you know, we would be like, Hey, it’s that time of year again? Yes. It’s a critical business tool. It’s going to happen every year and it’s gonna happen at multiple times. We going to be talking about it. We should always be talking about the plan. So it is a critical business tool. It isn’t a tick box, so let’s not be surprised. Let’s not wait for financial control to send the timetable. It’s going to happen. Um, so we, we just always have to be prepared and make sure we have our data in order.
Paul Barnhurst:
Great. I appreciate both those advices. And I agree with the comment we have in here from Rama that says, understand key drivers. That’s another great, great point. So why don’t we go to Zack next? What would you offer to that question?
Zachary Rial:
Sure. Uh, yeah, my, my biggest thing, I think my learnings in, in, in the time I’ve spent doing is, is communication. I found so many times that everybody submits their budgets and then it goes up to exec to review, and then you start making trims or cuts or additions. And I’ve seen so many times where that doesn’t ever get communicated back to the budget owners. And so then to them, they’re just like, what’s the purpose of a budget? Like they don’t care anymore. Right. I could just think, they just say, I could just throw out a number, you’re gonna trim it anyway. Right. and so as we, as I’ve, I’ve gone through several different businesses now and, and worked on revamping their budgeting process. My biggest thing has been to communicate with them. Here’s what I’m expecting from you. Here’s what I’m looking for. Here’s, what’s gonna happen next. And here’s how I’m gonna communicate those changes back to you. And so that they’re aware of what, where we actually end up where we land and they can give their input, and then they feel like they truly have ownership at that point of their budget.
Paul Barnhurst:
I love that. I mean, I can’t emphasize that enough. Communicate, communicate, communicate. Even if you think you have communicated it, do it one more time to make sure because if there’s any chance you didn’t, it will come back to bite you.
Zachary Rial:
Always does. Yes.
Paul Barnhurst:
I’ve had a few Aaron, you could, what
Aaron Sallade:
You, yeah, I would absolutely echo those comments. And I think it’s a great question. You know, I think the best piece of advice that I’ve been given throughout my career on the budgeting process is really that accountability and alignment is more important in the long run than accuracy. At best you can get close , but it’s never gonna be perfect. So a budget should ultimately just be used as a tool to focus and influence organizational behavior, but not necessarily predict it.
Paul Barnhurst:
That that’s great advice. Aaron is, I like to say, if I could predict it, I would be retired on a beach somewhere, because I would’ve invested in the stock market or real estate or whatever, if I could predict what was gonna happen with, you know, a high degree of accuracy. It really, it really is about the process and getting you to think and you know, figuring out what’s needed and making sure you have a plan in place then trying to hit an exact number.
Aaron Sallade:
Completely agree.
Paul Barnhurst:
So Annette, what would be, what would you offer?
Annette deYoung:
Yeah, so I think the best piece of advice I actually got from my CFO one time and she said, don’t be afraid to scrap what you have and start over. Right. I mean, we talked about everybody and of course as the whole panel said, all great advice that I’ve also heard, but that one was like, wait, you mean, I can just get rid of what we’ve been doing for the last 20 years and start over with something that might actually work, you know? And so that was just having that, that freedom to be creative and actually create a budget that works today compared to when it was first established 15 years ago was fantastic. It really was. So yeah, don’t be afraid. Don’t be afraid to scrap what you’re doing and start over again.
Paul Barnhurst:
Great. Appreciate that, Annette. So we have a few questions. I think we’re gonna take one or two now and we will, uh, take this first one here and we’ll get your thoughts on it, Michelle. So someone asked is a static or, you know, rolling budget better and how best to deal with the rigors of, and I would say rolling budget, which really, I kind of think of a rolling forecast, right? You’re re forecasting. So maybe, could you take that question for us, Michelle and give us your thoughts?
Michelle Govindsamy:
Sure. I’ll, I’ll give it a try. Well for me, they, they both have their place and they both have different purposes. The budget, uh, is going to be decided in advance signed off and that is what bonuses are agreed on. It is the budget. It’s decided on certain principles and its static value, static numbers, it exists and it doesn’t move. Though that is the commitment made. We will constantly be, um, going through a process of revised forecasting however, you know, how however practical that is or how you work, but within FP&A I mean that is the role, right? To be revising, to seeing how close are we to whatever targets we’ve made? Initially to that budget than as the business changes. And as the environment changes, how is that moving? So I can’t say one is better than the other. They both have their place for managing business performance. We use the rolling forecast to look at where we are going to end up, and constantly testing, are we gonna meet our commitments to the market? The static budget is something that exists for its own purpose as well. So I think it’s important to understand the two and that they both have their place and they both are pieces of management tools, uh, that are used.
Paul Barnhurst:
Thank you. Appreciate that, Michelle. So Aaron, I’m gonna give you this next question from Rama here. He asked, you know, top down based on strategy versus bottom up? So maybe you could talk a little bit about how you think of that. Especially being in the CFO C seeing the strategy and being involved in kind of, you know, the executive level meetings, but also owning, you know, the budget and the forecast and all that. So how do you, how do you think about those two?
Aaron Sallade:
Yeah, absolutely. I I echo some of Michelle’s comments. There’s two different use cases for top down versus bottoms up. So top down, I think you have to start with your strategic plan and once you have your strategic plan and those kind of guardrails of where your north star is for the business of the next three to five years. From there, you develop your annual goals and your annual priorities that should align to that strategic plan. Underneath those annual goals, you have departmental goals, departmental priorities that then roll up into your overall financial plan or financial forecast for the year. That financial forecast for the year should be bottoms up and should be built, um, you know, on a line by line basis. But the five year, top down plan may not necessarily be built on a bottoms up basis. And again, it depends on maybe the skill of the organization at that point in time as well. But, you know, I think there’s two different use cases for top down versus bottoms up. And you need both. Top down is fundamentally for strategic planning, and long range planning versus bottoms up is for more near term planning.
Paul Barnhurst:
Now, thank you. And I would agree with that typically a bottom up near term, it’s also a great way for the business to see where they believe they can hit to compare that to your top down, because I think everybody’s experienced this, you build it all up and it comes in short of what leadership wants and then the fun begins of trying to figure out how do you get to that number? Can you get to that number? You know, what’s the commitment? So it’s, it’s great to have both those views cuz they’re never gonna be the same. There’s always gonna be some difference that you gotta resolve. So Alrighty. So this next question here, we’ll give this one to Annette, not really a question, but some advice, just get your thoughts on it. So Temo, and I’ve seen him on LinkedIn quite a bit. He’s not a fan of budgeting. He talks a lot about that. We should move beyond budgeting and the rolling forecast and eliminate the annual budget process. So what’s your thoughts on that? Because there’s a lot of debate about that. Annette and everybody has a different opinions. Maybe what’s your thoughts on that?
Annette deYoung:
No, I agree. Stop doing it though and just because I’ve been, I did it for 17 years, I wish I could have just not done it. And to your point done like a rolling budget or a rolling forecast, which we were doing anyways. But, I also understand the purpose of an annual budget and I think Michelle even said too, it is to establish that baseline on what you’re going to be measured against right? Economies change. Right? A lot of your business, you know, it there’s a lot of levers that get pulled throughout the year. That changes. Absolutely. But when you set that budget, right, how close number one, how close are you to the budget? And number two, can you actually explain the variances? Right? Because just because we’re re forecasting every month or doing a rolling budget every month, that’s great because we know maybe we know where the business is going, but can we explain why? I think that’s why a budget and annual budget is so important because you have that baseline. You have that starting point and now you can explain all of the swings in your business based off of this one point in time. That’s, that’s my opinion. Anyway,
Paul Barnhurst:
Thank you. Now I appreciate that. And you know, definitely a lot of people found, find value in the budget. I can see also why just doing a rolling forecast, but you’re still gonna have some strategic level. You’re still gonna have conversations. You know, a lot of the work still has to happen in the sense that you still have to plan. So there’s different approaches and I’ll say there’s not a, there’s not a right or I would even say a wrong answer as long as you know, the, the right questions are getting asked and the you’re helping the business move forward strategically, that’s really the bottom line, right? Is that you’re helping the business achieve its strategic goals through the financial planning. And so I think that’s important to keep in mind, cuz everybody’s gonna have a different opinion of how to do it. And you know, it’s gonna vary by industry. So next question here, and we’ll start with Zach on this one. How do you think about forecasting throughout the year? You know, do you have an approach you like, like doing R and Os (risks and opportunities) rolling forecast once a quarter going out 12 months, 24 months. I even worked for a company where we went out. We did the current year plus three, every forecast in detail, you know? So you see just about everything wouldn’t recommend going out that far, but what’s your thoughts?
Zachary Rial:
That’s a great, that’s a great, great question there, Paul, you know, I think a lot of it, it depends on, on your business and your industry. Right? What makes sense? You know, some of the people who I’ve had the privilege of meeting lately work for a company that’s private equity and they were able to do their forecast on a five year basis because it’s pretty predictable to them. They have funds and things like that that make it really easy. And so every time they forecast it’s five years, right? It’s fun being in a startup here because every time I forecast it’s like we found something new, we discovered something new. There’s something that, that changed or an assumption that was completely wrong before. Right. ?And so we’re constantly doing, you know, out to the end of 20, 23 and then putting some really baseline assumptions out for like 20, 24.
Zachary Rial:
Right. And so, you know, our, I think our goal is to get a really detailed and comprehensive rolling 12 month forecast, which then makes it when budget season comes really easy to transfer right into budget season, because you already have a lot of that information. But we always try to go two years out with at least some baseline assumptions to know like, Hey, what do we thinks gonna happen? And I think that’s largely that has to do with the fact that we’re a startup and we’re managing cash, we’re managing things like that. Right. so that’s, that’s kinda my approach. I, uh, I can’t say that I’m a huge fan of monthly reforecasting. I think that that’s becomes a lot of busy work that, um, I don’t know necessarily the, the value that that’s gonna add, but I think again, that depends on your business and what kind of data you have and how complicated your model is. Right. I, I find quarterly is a really good place to start. And then from there you can assess how easy was this to do? How difficult was it to do? Would I get value out of redoing this every month and, and how would that help the business?
Paul Barnhurst:
I like that starting with less frequent, especially if you’re trying to figure out and then go, okay, do I need to be more frequent? Does that make sense versus starting out with doing it as often as possible because once you do that, it kind of just becomes ingrained and then you’re often it never gets reduced.
Zachary Rial:
Yeah. We were, we were talking before the meeting, we started, we were all joking a little bit about, you know, that we have these complicated files that end up getting built iteration upon it iteration because we never have time to go back and simplify them. Right. Well, if you start with trying to do a new forecast every month, you’re gonna have that happen. Right. You’re gonna add a new iteration every month and you’re never gonna have the time to go back and reflect and say, what could we have changed? What would’ve been, how can we make this more streamlined, more efficient, but don’t get me wrong. I mean, some businesses that absolutely make sense to do that monthly, you just gotta take the time to get yourself prepared for that. You can’t just jump right in.
Paul Barnhurst:
No, that’s a great one. And what I’m gonna do is we’re gonna ask Aaron that question as well. And then we’re gonna go through a few of the questions we have in the chat. I know there’s a few building up there, so just give us a minute and we’ll get to those. But Aaron, what’s your thought around kind of forecasting? What, how often, what method? That type of thing?
Aaron Sallade:
Yeah. I’d say echo a lot of Zachary’s comments as well, but I’m a strong component of a rolling forecast and actually a monthly rolling forecast. It, it depends on the company and the stage of growth that you’re in. If you’re in a high growth dynamic company, that’s changing a lot, rolling forecast is really important, understand where you’re going to be and understand current run rates. And when you have business owners coming to you and asking questions, can I advance this higher? Can I invest more marketing spend? Can I increase my CapEx spend? If you don’t have an understanding of where your business is gonna be in the next 12 months, based on current run rates, it’s hard to make that, you know, decision, you know, in short order. So I, I think having that rolling forecast is really important to be able to know where your trending towards your projections and towards your overall budget for the, for the year and, and make those decisions when business owners ask you those questions.
Paul Barnhurst:
Yep. No, I agree. And I’m a big fan of, you know, being able to understand where you think you’re gonna land having that revised forecast so you can make smart decisions and I’ll give one example. At one point I worked for a business where, you know, and this isn’t uncommon, everybody holds back. If they have opportunity, they don’t wanna give it up in the forecast. Right. They wanna keep it in case there’s that surprise. We had a business that held everything back until like the last month that we ended up coming in like $30 million better, which is a big number. It might have been 50 better than planned. And one of the VPs said, look, I held things back too. But last forecast, I offered it all up because I realized the only way we’re gonna know that we can invest it this year is that we have it.
Paul Barnhurst:
And we missed out on a lot of investments we could have done for the business, because we were so far ahead that year. And it was a really good learning lesson for some of the other leaders. Okay. Yeah, you got that bonus, but did you get what you needed for the business? You know, there’s that importance and that’s just something we as a finance have to be able to challenge the business and understand it well enough to look and say, there’s more opportunity here, but why are you holding back? Is there a good reason? So that, that was a really kind of eye opening experience for me that, you know, you don’t think of, oh, Hey, we beat it. Great. And then you think of all the other repercussions. Well that I really heard us in some ways because we didn’t forecast that.
Paul Barnhurst:
So next question here is somebody, you know, just one, it says LinkedIn user. So I’m not sure who it was, but just commented that, you know, the budget is static in one way and another, they talked about forecasts are being made and and that’s true. Forecasts are being made, you know, the budget doesn’t change though unless the business decides to make adjustments as a leadership team, which you occasionally see. The budget is static throughout the year. Yeah, sure. The business could make some decisions to make some targets off forecast. But as a general rule, budget is locked. Doesn’t change. It is the targets and the forecast is where the changes happen. So I get the point of what they’re making and there are some exceptions to that, but as a general rule, that’s how to think about that.
And then we have Josh here who just asked a little bit, how do you think about FP&A and AI? So when do you feel we’ll reach a tipping point? So, you know I’ll share a little bit on this just because this week I read the FP&A Trends survey, you know, and they talk about AI and I wanna say, they said AI and ML is being used by about 26% of the respondents. Now I would believe most the respondents are bigger companies. So keep that in mind, it’s gonna skew the data a little bit. The other thing that was really interesting is the study found only 39% of people had confidence in their budget. I think it was, uh, about an 11% decline from last year. Again, not surprising, but of those that were using AI and ML, 63% felt their budget was good or great.
So if they’re using it, hopefully that means they’re, they’re using it well. And you know, there’s a lot of discussion around that. You know, you gotta still have business judgment in there. You can’t just take the number it gives you, especially given so many businesses, historic numbers are so different than what they are today because of COVID. Right? And so I definitely think we’ll continue to see more he AI and the technology. The, the study also found that if you were using a cloud based tool to forecast, 11% of respondents were more confident in their forecast. So technology can be an enabler again, they were more confident, not as much, but if they were using a driver based forecast, right. And so those all play a role. So next question, here comes from LinkedIn user. We’ll throw this one over to Michelle. It says leadership wants a number. Is that a reality? What’s it based in investor hyperbole. So have you been in those situations where maybe you see leadership come with a number that’s not realistic and how do you, how do you manage that?
Michelle Govindsamy:
Well, I don’t think you know, the numbers are just thrown out of nowhere or just for sheer, uh, you know, let’s, let’s throw a challenge or, or let’s go get rich. It’s, there’s a reason, you know, there’s, uh, commitments to the market. There’s what is happening in the industry, what is possible in the industry are commitments to investors. So those that top down number as begrudgingly, as many feel about it is steeped in some reality for startups, for example, there’s you know, serious investor commitments that, that we have to look at in such short time periods and, and that are linked to the funding that we are given there’s loans that have been, uh, that depend on, on the numbers that we are forecasting. And, uh, there’s also like required growth and, you know, required returns that I expected.
So, I think when we look at it from that perspective where it becomes, uh, those situations I’ve been in is where the bottom up budget and the top down target has a big gap. That’s usually, and that’s always the case. But that’s usually where the, you know, there’s tension and like, where’s this number coming from where me as a business on the ground is stating what I can do. We are always going to have that push for growth and that push for innovation and that push for new markets. The business as usual growth is never going to be accepted. And I think, you know, once we are all at peace with that it, it makes for an easier, um, discussion. So yes, I’ve been in those situations a lot, but I think it’s guiding business, looking at the book of work of the 20 initiatives we have.
And this is what we are keeping ourselves busy with. What level of return are we getting? And can all those activities that we keeping ourselves through with going to give us the 10%, the 15% of the 20% that’s been asked by the business. And it that’s the point of the budgeting process or the planning of the forecasting process. We have made commitments we’ve said as business leaders, this is what we can do. This is why we are here. You know, these are the markets we are going into. There’s a financial consequence to that and that that’s shows itself in the top down budget. Um, and, and that’s such the reality, I think when we take that emotion out of it and realize that everything we’re saying, when we try to manage the narrative, when we, speak about all those great things we are doing, yes, there’s this number that that’s ticking away. And that becomes part of the top down target.
Paul Barnhurst:
Thank you. And I appreciate that. Zach, I know being in a, you know, VC kind of back company, there’s investors, a lot of requirement for growth. What’s your thoughts kind of on that question?
Zachary Rial:
You know, it just you’ll get it in new business, right? Just make up the difference in new business. No, you know, I I’ve been in the situation where previous company or backed by a private equity firm and the private equity firm said, here’s your, here’s your revenue target and here’s your EBITDA target. Right. And we’re like, okay, all right, that’s what it is. And, and, you know, they have their reasons for, for believing that they’ve created models, that, that say that should be able to happen based off of the data that they have. And, and usually very intelligent people are behind those things. But I think it’s just an understanding, you know, I think somebody made the comment before, like people are always holding a little something back somewhere, right? And so you, this is where the, the art of being a finance person comes into play.
Everybody says like, oh, finance people are number people. I don’t think that’s true. I think finance people are people people, um, and to be good at finance, you have to be able to build relationships and build connections to your business partners so that you can go and find those places where somebody is hiding things or sandbagging things or being maybe non-committal to a higher number and work with them to get to something that they’re comfortable sharing that can help you bridge that gap. Right? And so if, if your business partners don’t trust you as the finance person, they’re never gonna give that to you. And if they’re not, and if you don’t know them, you won’t know where to poke and where to look. And so you have to really, you have to let go of numbers maybe for a minute and embrace people and, and, and use that those relationships to get closer.
Paul Barnhurst:
Thanks, Zach. I appreciate that. Aaron, any thoughts that, especially the idea Zack mentioned that, you know, finance people, aren’t numbers people, but we’re people kind of people.
Aaron Sallade:
Yeah. I definitely would echo a lot of his comments. I think going back to the original question on when you’re given a number, I think it’s fundamentally, or it’s important for everyone finance team to understand, okay, what do we need to believe for that number to be true? And then creating the metric tree around that, around, here’s what we need to believe for that to be true. This metric needs to go be, you know, from range X to Y this metric needs to be. So whether there’s prevention, conversion, you know, some growth rate in sales, we need to believe this will happen for this to be true. And for, for us to believe that we need to make these investments in the business to, to be able to achieve this. And then I think that then it’s a conversation to, to Zach’s point on, okay, here’s what we need to believe to achieve this top level number.
Does the business believe this. Does whoever’s you know, dictating the number, believe that each one of these assumptions is achievable? And if so, do we have data to support it? Have we tested each one of those conversion rates or growth rates? Do we have a test to support that data? If not, well the next step is maybe setting up a test that we can test each one of those metrics along the way to understand is it achievable, but I think fundamentally it’s our job to, to be able to communicate, you know, what do we need to believe for that to be true, and to be able to, uh, coordinate that throughout the organization. And making sure that, you know, we have buy-in throughout the organization that, yeah, this, this could be achievable, but we have to believe X, Y, and Z?
Paul Barnhurst:
Great point. I see, you know, everybody nodding their head there and couldn’t agree more. I still remember, you know, one budget I had where we built kind of a bottoms up with the sales team. And we came up about five, 6 million short of where we were the prior year due to some business losses and the general manager, like, Nope, we have to go in at least flat and, you know, started layering in every imaginable opportunity possible where everything had to go perfect. And I ended up leaving that business. But when I left, we were forecasted to be somewhere close to thinking, maybe slightly lower than what we originally had. It was just one of those where, you know, what can you do? So, you know, it’s always that balance. Sometimes you have to get to a number that you may not believe is achievable and you need to speak up.
But at the same time, you know, we don’t set the final number. We, we just manage that as best we can. So we’re all going to deal with those situations sometimes where we don’t think the, the number is possible. I even was aware of one situation and a company I was with. And it was before I got there, there was such a disconnect in the business unit between finance and the business. That finance refused to submit the business’ forecast to corporate, and they were keeping separate budgets for the year, which is just a terrible way to run a business and turned out finance was right. The other one was nowhere close to the final number but, you know, so you need to, that’s where you need someone to manage the people, because that should never happen. I still can’t believe when I heard that. I’m like, wait, what? You had two budgets, like who thought that was a good idea, but anyway, so next question here and on this one, we’ll start with you, Annette. So, you know, how do you, how do you think about the finance tech stack, you know, its importance in budgeting and planning,. You know, we hear about the data challenges. Everybody faces a lot of time in data, crap non-value added. So they’re just kinda high level. Any advice you would offer to people that, how they should think about that and manage that?
Annette deYoung:
Yeah. Uh, yeah. Tech stack wonderful thing. Right? Cause I think up, up until like maybe 10 years ago, the only thing we really had in our back pocket was Excel. We Got really good at it, right? We, we taught ourselves how to write VBA and SQL and to get data out of our source systems and into, you know, usable tables that, of course we spent hours and hours looking at and trying to right. Merge all that data together to get insight. Now I think even today everybody’s still in Excel, but there are a lot of different tools out in the marketplace that can really help in aiding, right your forecasting, your budgeting, um, and even your reporting that you’re doing on a regular basis. You don’t have to continue to, you know, not necessarily live in the dark ages, but you don’t have to continue to live in huge models, right.
Where you’re bringing in lots of data, because the problem with that is number one, you created it, you know it, and if I win the lottery tomorrow and I leave all of that knowledge goes with me. So there’s no repeatability and there’s, there’s no shift of knowledge, right? When you’re building models specifically and in Excel using the older tools, like again, writing macros or using, you know, SQL using, you know, any kind of connection. And so I think finding something that works for you and your business, right? Finding something that works for the company as a whole, not necessarily just for you, so that if you do decide to, you know, get promoted or, you know, leave the company, none of those processes are going to break and they can easily be transferred to somebody else in your department.
Paul Barnhurst:
I appreciate that. And I like how you said, finding what works for you. There’s lots of options and tools and things that can be done. And technology is an enabler, not a solution. Right. And I remembering that as important. I also like how you said, if you won the lottery, because I used to say, Hey, you need to teach me this process. Because if you get hit by a bus tomorrow and someone said to me one time, why a bus? Why can’t I win the lottery? So, ever since then I’ve now started saying the lottery. They didn’t like the bus example. So like I caught that. All right, Zach, we throw that question to you about, you know, kind of the finance. I know you’ve worked with some smaller companies and probably done quite a bit in Excel.
Zachary Rial:
Yeah. So I’ve done a lot in Excel. I’ve done, I’ve done quite a few ER P implementations. I’ve put in some FP&A tools, um, ou know, just you name it. I I’ve done a lot.It’s, it’s funny. I come from the, the group of finance people that is kind of resistant to coding and resistant to, um, that, that those type of, of things. I, I like to do things maybe the old fashioned way. Um, but I also love technology and love what it can do for us. And so, you know, I think the most important thing to, to recognize is exactly what you said, Paul, your tech stack is an enabler. It’s not a solution. Unless you have your house in order, a tech stack means nothing. Right? And so, um, you have to make sure you’ve got the right players looking at the right things and understanding things fundamentally the correct way for your business before you can even begin to implement a tool to be useful to you.
Zachary Rial:
Otherwise, you’re just gonna be faster at getting bad information, which doesn’t really do you any good. And so, um, but, but I think ultimately it’s finding the right fit for your business, right? There’s tons of great tools out there. And I think we sometimes default to what we’re most comfortable with and we just say, Hey, I’m gonna do this right. Because I know it. And that doesn’t necessarily mean it’s the best thing to do. There are tons of great companies out there nowadays that they’ve made a business out of being a system selection partner. And they’ll come in and look at your business and say, hey, here’s what we see. And here’s the tools that we know. We think that this is the best fit for you and they can help you understand why that might be better than what you’re comfortable with, what you’re familiar with. And the plus side then is you get implement that and learn it. And now you’ve got another tool in your toolbox. Right. So that’s, I guess kinda my answer to your question, not really a direct answer, but uh, that’s how I see it.
Paul Barnhurst:
I like the last part you said where, you know, getting advice on these are some tools that could work for your process is where you’re at. I know you and I have talked a little bit about that and sure. That’s the last suggested some different vendors that might be good in your environment where you’re at to look at.
Zachary Rial:
It ties into this idea. Like we pay people who are experts to do very specific things because having that person on our staff just doesn’t make sense, right? Like you’re not going to pay to have an implementation consultant, sit on your staff and do an implementation once every five years. Right. But you’re gonna go and get somebody who’s an expert in that from outside your company to come in and help you do it when you need it. Right. And so use the experts, let them be the experts. And then you judge that against your knowledge of your business.
Paul Barnhurst:
Yep. Now thank you, Zach. We’ll go over to Michelle here for that question.
Michelle Govindsamy:
Yeah. I mean, when it comes to the tech, we know it’s made leaps and bounds in recent years and, and there definitely is the tools available that can support our process. Many of them are out there on the market, really good tools, I think where we need to start thinking and where we are starting is as, finance professionals is to change the way we think about the technology. Um, you know, there was that hesitation and the fear around the technology. The tech is only going to work if we embrace it and understand the new skills we are going to need as a profession to embed it into our day to day, just as we’ve embedded Excel and, you know, Excel, isn’t going anywhere, don’t fear. And you know, it’s only getting better and better and there’s so much we can do with it.
Michelle Govindsamy:
But I think there’s a new type of finance professional. There’s gonna be multidisciplinary finance departments. They are multidisciplinary finance departments. We need to open our minds to what is the data science stack? What is all those things on the Anaconda kind of, uh, you know, page and how can it help us with the things we can do and what skills do we need to bridge ourselves? So can bring that into the work we do to provide a better output. And I think that is where we are. The technology is there and some of our problems feel so specific, right? You can’t ask the tech guy who drops the tech to solve our problem. They aren’t just gonna push the button. And our problem is solved. The only way to really embrace the technology, to embrace the new skills we need and move away from the loan financial modeller, sitting in a dark room, knowing end to end everything that’s happened.
Michelle Govindsamy:
There’s a little bit of control. We would need to relinquish new skills as a profession. We need to gain. You know, I was at an event and speaking to some of the people at this event, and, uh, they were speaking about the young finance professionals who were already coming in with SQL in their back pocket Python in their back pocket. So they’re not coming to grudge through dirty data and things like that. You know, they want the exciting stuff. And so we need to be ready for them and, and, you know, keep that fire burning. So I definitely think it’s a mindset when it comes to technology. Are we ready to go and embrace the technology? And we need to have an abundant mindset that it doesn’t mean it’s gonna take away. There is so much work, so many problems to solve. It can only make us better.
Paul Barnhurst:
Thank you. And I, I appreciate that. And I think here for a minute, we’re gonna go through some of the LinkedIn, because there’s been some good conversation and comments on this. So I’m just gonna start with the first one. And one person said biggest issue with the tech stack versus Excel is the ability of the tech stack to survive. You know, nothing worries them relying on a system only to have its sunset and restart the process. Agree. It’s always painful when that happens, but there are a lot of, you know, big mature companies out there. Now, you know, if you’re picking a startup, you’re taking a risk and you have to weigh that against everything else, there may be a lot of benefit. You may feel they’re secure, but you know, my comment to that would just be that. Then we’ll go to the next one here and I’ll give this to you, Aaron, and just get your thoughts on this comes from Aisha. So, which is preferable between, you know, tech stack vs Excel?
Yeah. I don’t know if they’re mutually independent, but uh, I think, again, it all comes down to the size, scale and growth trajectory of the organization. You know, if you’re in a small organization, you know a startup like where Z is, you know, Excel or even Google sheets might be sufficient for the planning process. If you’re in a large organization international organization with tens of thousands of employees, you need an extremely efficient system and process to be able to clearly articulate that plan across the organization to get the adoption and enable appropriate access. So it kind of really depends on the organization, you know, that you’re working in, um, in regard to the level of technology that you’re going to implement. But at the end of the day, I think the most important thing is that the plan is transparent and that you can clearly communicate across the organization. And then it provides a single source of truth of where the, where the organization’s going and to focus and influence, uh, you know, various stakeholders across the organization.
Paul Barnhurst:
Yep. Now, and, and I totally agree. It’s really, it’s not about the tool, right? There’s tools that are 40 years old there’s tools that are five years old. I don’t think we’ll list names. It’s Excel can work for some companies and you may be able to stay on Excel, you know, forever, but typically, you know, in the planning and budgeting and the analysis, being able to use other tools can bring value. And so you have to figure out what works, but I think Rob made a great point here at his comment. You know, people process product. Doesn’t matter what tools you have. If you don’t have the right people who can adapt the process to give you what you need. The right people will evolve and iterate your tech stack when you empower them. And I think Rob, I think that’s a really good point at the end of the day, if you have the right people they’ll make the process work, they’ll, they’ll go out and figure out the tools.
Paul Barnhurst:
They’ll be some bumps there. You know, there’ll be some learning experiences, but good process and good people are the most important things you can start with, you know, then your house in order, you gotta have good data and then you need to define decide what makes sense for you. You know, what, what that looks like because it’s gonna be different for every, every company. So moving on here, you know, Aaron, I know, you have been a CFO at bigger pockets for, you know, a few years now. How do you think about managing the budgeting process? You know, how do you think about, you know, managing the business and the CEO through the, through the annual budget process?
Aaron Sallade:
Yeah. So I think it’s all about relationships and communication. I thought, I think it starts with annual goals for the business in the upcoming year. Once annual goals are established, I think it’s really important that, you know, each department creates their own operating plan. And there’s, uh, cross-functional collaboration, uh, within those operating plans that are developed, those plans should include what is each department’s priorities, what investment requests they have, what are their expectations around cross-functional support, and potentially, uh, you know, tactics to mitigate risk in the upcoming year and when those plans are, when there’s collaboration around those plans, there’s better alignment about what’s a priority for the upcoming year and probably more importantly, what’s not a priority for the upcoming year. And then fundamentally those plans, the qualitative and quantitative output from each one of those plans should underlie the assumptions within your financial plan.
And your financial plan should be built, you know, around that. So, you know, that’s how I typically like to implement the process and, you know, the major key stakeholders across the executive teams should be, you know, involved , throughout the process. Um, you know, and kind of taking ownership around the outputs from their, you know, operating plans through, you know, what gets, uh, input into the financial plan. And then ultimately the CEO should be bought into the reasonableness. But yet, uh, in business that’ll be a real plan.
Paul Barnhurst:
Right. Thank you, Aaron. All right. Well gonna go over to Zach here for a question now, you know, Zach, I know you’re working for a small, fast growing business and you alluded to this in some of the earlier answers. Can you talk about maybe some of the lessons you’ve learned about the budgeting process in a startup environment? So maybe what’s the one or two things you would offer to people who are looking to, you know, join that type of environment. What
Zachary Rial:
About, well, so I’ll first caveat. Don’t join a startup if you’re not ready for ambiguity and change, because it happens every day. Um, but, uh, you know, I think one thing that was, was told to me, um, a while ago was no forecast is correct, but some are useful. And I think that’s the biggest thing that you can apply, especially in a situation where you have rapid growth and a, in a very complex changing macroeconomic environment like they have right now is when you build a budget, when you build a forecast, you want to build it in a way that, you know, you’re trying to be as correct as you can, but you’re not going to be, but what you can do with it is say, here’s why I made these decisions. Here’s what actually happened. And here’s what I’ve learned from that.
And so when you build a budget at the beginning of the year, that gets blown up by, uh, COVID 19 or raising inflation or, uh, you know, you name it, right. You can look back and say, okay, I, I didn’t account for this. I didn’t account for that or, you know, Hey, I, I thought we’d sell based on our historical averages and turns out in this environment that’s not where we’re where we’re at anymore. And here’s the difference, right? Um, that’s, I think the biggest and most important thing. And in order to do that, you have to really have I don’t wanna say simple, but simple as the right word, you have to have a simple model, a model that allows for you to easily jump in, find the drivers, pull those drivers out and connect those drivers right back o your success, whether that’s on the expense side, the cog side or the revenue side. That’s, been my learning.
Paul Barnhurst:
Thank you. And I appreciate that. And there’s a lot said to trying to keep it as simple as you can, the business, the nature of what happens. It will become more complex over time. Don’t make it more complex on yourself. By nature that you kind of, it does it on its own. So moving here to Michelle question for you, you know, I know you talk a lot about technology and I know you work on that. So what can you want, what would you offer to companies wanting to improve? I know we talk a little bit about that, but the use of technology, where would you suggest they get started down that journey if they’re wanting to try to figure out how can I better incorporate, you know, what’s out there into my processes?
Michelle Govindsamy:
Yeah. I think there’s, I mean, two ways start where you are. You know, number one, uh, especially in, in mid or larger organizations there, you will find, there is so much tech, any tech you’ve heard about someone is using it somewhere in the organization, and have those conversations about the problems you are dealing with and what would fit you better, speak to it and the tech teams about your problem, because they may have a solution that already exists within your organization, speak to the data and analytics teams. They could have processes tools already at your disposal. They could have massive datasets that could be so valuable, um in your budgeting and forecasting, um, uh, process. So something as simple as that, and yes, as I said, it’s not about the tool. So many people are using open source technology to solve some of the problems they have.
It’s articulating, what is that problem? And having the desire to improve it in another way or the space and capacity to lift your head up and say, there should be a better way of doing that now in this in 2022. So let me see what I can do. Um, so it’s just, just taking that breathing room and asking those questions. And just being in touch with, with the developments that are having as individuals, as individual finance professionals, to ease your own pain. Your organization will be going through their own process. They will be changes happening. System changes, moving to the cloud, adopting new systems, be in touch with, with what is happening there. And as I said, the tech person from whatever organization or whatever tool that is around may not be able to drop in and solve your problem at the click of a button, you may need to meet them halfway. But the tech is going to find its way in. We just need to embrace it and you know, be excited about it. I think that’s the thing. It is exciting. It just will take away a lot of the pain that we are experiencing.
Paul Barnhurst:
I, I think that’s a great point. We need to embrace it. We need to be excited about it. And I mean, the thing to remember is these tools are trying to solve a pain point, right? Whatever they may be. They’re not out they’re, you know, they’re not out there to make life worse for us or make it harder. They’re there to help us, as I say, they’re in enabler. So I think that’s important to remember. And we had one question here that just kind of came up from Myesha. You know, what’s the one single linking relationship between budgeting and forecasting. And, and I’ll add a little bit of that. Really what it is is you, the annual budget is your anchor. And in each forecast, your goal is to try to figure out how you can get back to that number. What’s the plan that will allow you.
Sometimes you may acknowledge, look, we’re not gonna get back. And so what’s the best we can do, but really that forecast is to do the truth as it is today, the budget was the best estimate or the truth at the time it was developed. And sometimes before it’s even complete, you know, it’s outdated, especially in a COVID or a rapidly changing environment. You’re like, oh, it’s approved. All right, well now we gotta change the forecast because something happened last night and it’s blown up. But even despite that, it’s really it’s that starting place for most companies, they look at it as their target for the year. And the forecast is around trying to remediate to that. And I’ll just throw that out to everybody in the audience. Would anyone add anything to that? Feel free, you know, Michelle and Zach, Aaron, anything you would add to that?
Michelle Govindsamy:
I mean, I think that was, I mean, that’s spot on, you know, we, we do the budget, it’s a, it’s a governance process as well. It’s something that goes all the way up to the board, etcetera. And we are tested against that for the 12 months to come. And that is the commitment that is made and it remains the commitment regardless of catastrophe or whatever does occur. The forecasting is the ongoing management of the business, how far away and how do we act, o get back to that commitment or raise the alarms that look, this is not gonna happen. Um, but yeah, the budget does not go away. It’s the story we continue telling around it. There was reasons for that budget once upon a time and it’s being able to articulate, uh, where we are and how we’ve moved.
Paul Barnhurst:
Thank you, Michelle. And I know Annette, you need to drop here in a minute. She has a meeting right at the top of the hour, so we’ll let you go ahead and go, but thank you for joining us today, Annette. Yes. And if everybody else can hang for a few more minutes, thanks again. We really appreciate it.
Michelle Govindsamy:
Bye bye-bye.
Zachary Rial:
Bye Annette.
Paul Barnhurst:
Thanks Annette. If, if nobody I’ll give a minute here to see if anyone else has any questions you can can throw them in the chat. If you don’t, I’ll give it about a minute here. We’ll just kind of wrap up and give our panel here an opportunity to offer any last thought. So looks like we do have a couple questions here, so we’ll go to first one. I think it’s, Gais. Understanding the drivers of the cost and revenue is the key for reasonable forecasting. I appreciate if you could discuss a little bit about this point., Aaron, could you maybe talk a little bit about that of kind of the drivers and how, you know that’s used so often to help us forecast and why that, why that is?
Aaron Sallade:
Yeah. So just so I understand the question, the drivers of cost and revenue should be your operating metrics or your KPIs, that all built up to your financial outputs. So, I think understanding your KPIs is first and foremost, and understanding that that metric tree that then builds to your financial outputs that’s, that’s the most critical, uh, component of building your forecast or building a overall budget. Um, you know, if you don’t understand this KPIs, you, you know, you’re not going to be able to build appropriate revenue or cost budget or, or forecast. Um, I’m not sure if that answers the question, but yeah, I, I think that’s what
Paul Barnhurst:
I, yeah, no, I think that does. I mean, I think like you said, you really have to start with the metrics and understanding the business and what those drivers are and how those drivers influence cost and revenue.
Aaron Sallade:
Absolutely.
Paul Barnhurst:
Right. You know, driver might be customer acquisition or churn or whatever those things are that drive your business and it will be different for each business. So it doesn’t look like we have any other questions. We had just some comments there. I’ll, I’ll start here and just take them minute. I wanna thank everybody for joining. I really appreciated all the comments in the chat here. And I hope we addressed everybody’s question. If we missed one, I apologize. They were coming pretty fast and furious at different points. We monitored it as best we could. And I’ll just give each of our panelists just an opportunity to, you know, add any last thoughts before we go ahead and close the session. So Zach, anything you’d like to add?
Zachary Rial:
No, I just think, you know, my, my advice would just to keep doing what you believe to be value add and try to find ways to really give insight into what happened and why, and that, uh, that’s how, as we understand the past, we can help to predict the future and, and FP&A people, our value isn’t in the past our values in the future.
Paul Barnhurst:
So I totally agree. Accounting looks backwards, FP&A should look forward. We had, you know, a question here and I don’t know if we have time to get through all of them, but just real quick, one person asked if budgets are dead in this environment, I will say, no. Should they be? That’s something each business has to decide if they should go to a rolling forecast, that’s, that’s gonna be a debate that you’ll see going on for a long time. And I think we’ll leave it there, because we’re nearing the end of our time. You know, what size shoulda company should have a robust budging and forecasting. Again if you know, if you’re a one person shop, you probably don’t need a detailed budget. It’s gonna vary a little bit by industry. You know, as soon as you take funding, you’re gonna need some level of forecasting and budgeting to understand cash. So there’s not one, one answer to that, but you know, there’s definitely something to that. I’m gonna go ahead and turn it to Aaron for just his last thoughts here.
Aaron Sallade:
Yep. Probably just say I appreciate the time and I appreciate everyone’s questions. Yet from a budgeting and forecasting standpoint, they do serve two different purposes. Um, but they’re both very valuable for your business and for understanding and for being able to communicate across the business, what, you know, what is important and keeping all business owners aligned and focus on what’s important to be able to achieve certain goals. So at the end of the day, you know, both, both processes are important. The tech stack that you use to get there is gonna be dependent on the size of your organization and maturity of the organization. But uh, you know, your goal as a financial professional is to be a partner and to drive value, as Zach mentioned. So I, I think that that’s ultimately what you should be striving to do for the organization is to drive incremental value. Um,
Paul Barnhurst:
Thanks, Aaron. I appreciate that. And totally agree. The goal is to drive incremental value. Michelle, anything you’d add?
Michelle Govindsamy:
Yeah, no, thanks a lot. Paul, everyone who joined and the panel, it was such a valuable discussion. I think if I want to say anything it’s that, you know, both the budget and forecasting processes, they can be extremely painful, but they are not tick box exercises. We can get so much meaning it’s our day job. You know, it’s what we spend so much time doing. So ask the big, complicated questions. That’s what your business wants from you, really partner with them. And it can be such a valuable process if we speak to business in their language and show value.
Paul Barnhurst:
Thank you, Michelle. And I love how you speak to them in their language and show value. So we’re gonna go ahead and close the session there. We’re right at the top of the hour, but I again want to thank our guests, Zach, Aaron, Michelle, and Annette, who left a few minutes ago. Thank you for being on really appreciate your answers and thank you everybody for attending. And, uh, you know, if you didn’t get a chance to attend or if you wanna re-listen to this in a few weeks, it will be out as a podcast for FP&A. So we’ll let you know when that comes out. Thanks again, everyone.
