Surviving Budget Season and Strategic Planning: 10 Tips from a CFO

No exercise is more anticipated yet dreaded by business leaders than budget season and annual strategic planning. 

This pivotal period involves aligning long-term business goals with financial resources, developing an adaptable strategy to guide the company toward its objectives while remaining flexible to market changes. 

The pressure to execute a repeatable and scalable process is immense because failure to do so significantly impacts a company’s ability to meet its goals. As organizations and boards prioritize efficiency over growth-at-all-costs, developing a budget that clearly links investments to strategic goals is a crucial first step in effective spend management.

We’ll explore budgeting and planning, breaking down 10 steps (and tips) to help you prepare and navigate the process effectively while ensuring your leadership team stays focused on achieving efficient growth.

10 Steps (and Tips) of Budget Season and Annual Strategic Planning

Business priorities often introduce areas that require incremental investments beyond the initial budget and run-rate. Depending on financial performance, funding these initiatives might mean uncovering opportunities in other areas of the organization, which forces teams to hastily scramble to find savings or implement unrealistic operational changes without proper planning. Growth and efficiency will be sacrificed if these initiatives are underfunded and unclear.

Before diving in, understand that this strategic balance has a major impact on whether efficient growth can be enabled (or not).

1. Kickoff Strategic Planning

Budget season starts with a deep understanding of company strategy, not just dollars and cents. A healthy strategic review includes revisiting the vision, mission, and values, along with a comprehensive market environment scan. Understanding the competitive landscape is crucial, but businesses must also reflect inward to ensure their positioning aligns with market opportunities.

Market sizing models are vital, even for smaller organizations. Defining the total, available, and addressable market helps make informed decisions. Reviewing the product roadmap ensures alignment with the company's mission and market opportunities.

Pro Tip: Reflect on the previous year’s strategy to understand what worked, what didn’t, and how to adjust your approach.

2. Establish Budget Baseline

Developed alongside the strategic planning kickoff, the budget baseline forms the financial foundation for the year by clarifying expense and revenue drivers.

The budget baseline is the preliminary budget based upon all currently known investments (prior to layering in additional activities that will come from the strategy work described in succeeding steps below). The two largest drivers of expense for a budget baseline will typically be personnel and tech stack investments, which requires teams to have comprehensive visibility into spend, suppliers, and contracts (with their end dates) to see where expenses could expand, contract, or churn.

To determine expenses, businesses will adopt either:

• Zero-based budgeting: No assumed baseline spend; all expenditures are defended from the ground up.
• Run-rate budgeting: Current spend level extrapolated out into the future becomes the baseline that additional assumptions are layered upon.

To determine revenue drivers (which is needed to inform expenses), businesses will conduct revenue modeling. Go-To-Market leaders, with Finance's support, should drive this process using one or both of these methods:

• Funnel-based: Sales opportunities materialize from demand generation activities.
• Top-down/Bottom-up: Combines high-level targets with detailed projections.

Pro Tip: Because tech stack investments are often one of the largest expense drivers, it's crucial to include all committed vendor contracts in your budget baseline to avoid costly oversights. A spend management tool incorporating Generative AI (GenAI) can streamline visibility by extracting data and correcting inconsistencies.

3. Set Targets

Performed in tandem with strategic planning and budget baselining, CFOs and finance leaders collaborate with executives and investors to align on achievable revenue levels, gross margins, and necessary operating expenses.

The shift from "growth at all costs" to "efficient and profitable growth" has made metrics like the Rule of 40 more relevant. Setting the right targets requires balancing believability with ambition.

Pro Tip: Use supplier benchmarks to understand market trends (i.e. unit economics, spending, etc.) and ensure your targets are realistic yet ambitious. A spend management tool incorporating GenAI can tackle this more efficiently and accurately by analyzing historical spend data, industry trends, and external factors.

4. Identify Gaps

Identifying gaps between revenue projections and leadership targets is crucial because it can make or break a company’s ability to achieve its plan.

• Revenue gaps: Often relate to the sales funnel, conversion rates, and retention.
• Expense gaps: May arise from misaligned investments that don’t support revenue goals.

Addressing these gaps requires more than just spreadsheets; live discussions with healthy debates and decisions are necessary. This phase ensures the business is clear on what needs to be done to achieve its goals.

Pro Tip: Because revenue is only achieved through the investments being made to achieve them, treat revenue and expense gaps as interrelated. Empower Finance to ask tough questions about investments, team readiness, and resource waste and allocation.

5. Review Levers and Leakages

To fill identified gaps, businesses must explore and address two areas:

• Levers: Opportunities for improvement.
• Leakages: Areas of operational waste.

While many companies treat this process as a quarterly reactive scramble, this approach should be an ongoing and proactive effort. Finance should be empowered to recommend alternatives and create a flywheel of these opportunities for review. 

Pro Tip: Regularly review expenses for duplication or underutilized resources, especially after cycles of growth, transition, or pivots. Streamlining processes can lead to significant savings.

6. Establish Key Priorities

Aligning key priorities involves understanding the inputs, outputs, and outcomes of business activities.

• Inputs: Activities directly within our control.
• Outputs: Results from executing inputs, often handed off between teams.
• Outcomes: The combination of inputs and outputs working together.

Teams should collaborate to identify interdependencies and focus on areas that will drive the most impact. Priorities can be categorized into "Run the Business" (essential activities) and "Trajectory Changing Bets" (innovative risks). Managing these priorities requires a system of regular reviews and adjustments.

Pro Tip: Map out inputs and outputs, assessing each component's effectiveness to highlight areas needing improvement.

7. Integrate All Activities Into a Model

Converting all activities (your inputs, assumptions, and accountabilities) into a cohesive plan requires careful documentation. Whether you're using planning software or spreadsheets, the goal is to create a scalable, error-resistant model that accurately incorporates all activities. This includes (but is not limited to):

1. Key initiatives
2. Bookings targets (derivative of lead volume, conversion rates, AEs, ASPs)
3. Retention targets (derivative of NRR, GRR)
4. Staffing levels/hiring needs (derivative of employee retention, capacity models)
5. Tech stack investments (tools being offboarded, tools being onboarded)
6. Merit/promotion allocations (percent of salary)
7. Benefits expense (anticipated changes/increase year-over-year)
8. R&D investments required (based on product roadmap, new features, new markets)
9. Demand Generation funding (SEO, SEM, Partner, etc.)
10. Infrastructure ability to scale (GM impacts, cloud investments, etc.)

By combining all inputs, assumptions, and accountabilities into a model, you can pressure test your plan from the bottom up and top down with the leadership team to ensure all pieces fit together seamlessly and work as a cohesive unit.

Pro Tip: Pressure test your plan to ensure clarity and completeness, testing different inputs to see how they ultimately impact the budget and the intended outcomes.

8. Finalize Formal Plan

Proper documentation can prevent last-minute scrambles and ensure a smoother finalization. Documenting a formal plan should include financial statements (i.e. income statement, balance sheet, statement of cash flows), along with an operating plan in the form of a slide deck that answers:

• What is the opportunity that the company perceives to exist?
• Where is the company situated currently (retrospective on prior year)?
• What is the future state (outcomes and goals to be achieved)?
• How does the company plan to achieve targets?
• What are the Investments required for achievement?
• What are the risks that might be present?
• How is the business mitigating risks?

Pro Tip: Document your inputs, outputs and outcomes and review your model with the team throughout the process. This makes it a lot easier to formalize your plan when you’re ready, and ensure there are no surprises for your leadership team. 

9. Approve and Rollout Plan

Leadership teams present the plan for review and approval, typically to the Board of Directors and investors. If revisions are needed, the process may loop back to earlier phases, and this ultimately leads to a stronger plan.

To avoid delays, nail down the list of levers and leakages as a resource for filling gaps.

Pro Tip: Codify targets in your systems of record to keep them visible and maintain control over software spend with a robust spend management tool and intake-to-procure process to ensure adherence. Systems that incorporate GenAI can efficiently detect shadow spend and analyze contract documents for potential risks, helping teams reinforce controls among users proactively.

10. Execute proactively

The plan should remain relevant and actionable throughout the year. This requires establishing an operating cadence of regular check-ins to review the performance of priorities, observations, key learnings, and things you would do differently. 

Measuring impact and return on investment allows leaders to adapt budgeting and planning according to strategic initiatives (like efficiency and growth). 

The process includes constant assessments, “budget versus actual” discussions, and democratizing data and insights for owners. By doing this, you help your people realize how intricately connected they are to the business and how their work contributes to its success.

Pro Tip: Involve employees in the planning and measurement process, actively seeking their input. When they see themselves reflected in the plan, they’re more likely to stay engaged and committed.

Climb the Budgeting and Planning Mountain with Tropic

Annual strategic planning and budget season can be a powerful enabler of company growth and efficiency. The way a company allocates its investment dollars is a window into how it believes growth will be achieved and operational challenges will be addressed.

A spend management solution like Tropic allows you to peer into the window more clearly and confidently (particularly in the budgeting and planning process) to gauge the effectiveness of those bets and recommend time and cash-saving opportunities. 

Tropic helps you track how your current budget is allocated and identify areas where you can reduce that spend – either by removing duplicative or unnecessary spend or simply negotiating contracts that aligns to your business needs.

In this way, Tropic is like an experienced sherpa helping a company cross the rocky climb of the budget and planning cycle so that you can safely reach the top. Request a full demo to learn more.