I thought I was in the clear. With three weeks until the board meeting, I’d set up the budgeting templates, compiled the actuals, agreed on a 3x revenue target, backed into department targets based on best-in-class KPIs, and was ready to sit down with the budget owners. I thought the next week would be easy. Then, I sat down and ran into the multi-headed hydra of budget personalities. I had the:
The overconfident budgeter: “Looks great. I’ll nail my targets. Can you just fill in the rest?”
The historicals-focused budgeter: “One of these actuals is wrong, so I can’t move forward. Yes, I bought that tool, but a couple of people from HR use it too, so those costs should be distributed out of my budget.”
The not-bought-in budgeter: “How am I supposed to hit these numbers? I never agreed to this.”
The bottom-up budgeter: “I need more lines to budget. How can I understand ‘supplies’ without splitting it into 10 more categories, and having every employee broken down by name and exact expense?”
The budgets-don’t-matter budgeter: “Why do we need to do this? It’s all going to change next month.”
The everyone-needs-to-be-included budgeter: “I can’t do this without talking to each of my team members. Oh, and we need sub-department budgets for each of them.”
Needless to say, the board materials were submitted two nights before the board meeting, after a couple of all-nighters, and everyone was frustrated. The next quarter wasn’t a success. Not great.
So, what can you do to avoid such discord? What can you do to make sure you don’t spend too much time budgeting, and you get the buy-in necessary? Two main things.
Hold a strong budgeting kickoff focusing on the process itself and the tone.
Fully empathize with the department head’s approach to budgeting, in order to become a truly effective business partner
1. A Budgeting Kick-Off That Emphasizes the Process and the Tone
Once the broad strokes (top-down) targets have been established, book an hour for a department head meeting and get all executives together in the same room. The structure of the meeting should be as follows:
Present the headlines and insist on questions.
Put up a pie chart showing the percentage of expenses in each bucket (salaries, marketing expenses, COGS, overhead costs).
Tip: One of the biggest mistakes is focusing 90% of the budgeting time on the 20% that is overhead costs.
Establish the tone for the coming week: “Budgets are tools to coordinate across the business. There’s flexibility, but best practices are best practices for a reason. This is the opportunity to creatively solve problems before they happen. Information is never perfect. The finance team will help and is your key business partner, but at the end of the day department heads are responsible. Don’t stress the small stuff.”
Tip: Normal budgets aren’t about cutting expenses line by line. For that, see the CEO’s Line by Line review.
Walk through each person’s budget target and topline numbers with the group.
Have everyone agree to their targets and dates out loud or in writing.
Done! Smooth sailing, right? No. You now need to get the work done, and each department head will walk out of that meeting with different interpretations. Your success depends on succeeding with each type of budgeter.
2. Empathisize and work with each type of budgeter:
The overconfident budgeter: “No worries. I’ll hit it…”
These are often the trickiest. They’ve committed to something they truly believe they can hit, but haven’t fully thought through and can be combative when challenged. But if their numbers fall short, it will inevitably be on the entire company. It’s your role to make sure they’ve fully thought through the numbers. In the meeting:
Agree with them. Just say you need to do your diligence; it’s your job.
Ask how exactly they will reach their targets—in detail.
Tip: If they have an ARR target, what’s their inbound/outbound split? If they need to improve something like conversion rates, what are the actual steps they will take to do it, and when will it be done by?
Identify the input metrics they will need. Yes, this reiterates the above. It’s important.
Discuss what they need from other teams and what could go wrong outside of their control.
This might be painful, but you owe it to everyone to make sure people have thought through their commitments.
The historicals-focused budgeter: “These actuals are all wrong…”
Actuals won’t be perfect, but operations must move forward. When confronting this type of budgeter who focuses very strongly on past details, put in some extra work before the meeting to review their line-by-line actuals and make changes wherever necessary (then flag to the accounting team if fixes are needed). In the meeting:
Explain that this is a forward-looking budget. This is about the next period. You can try asking them to think differently like, “imagine we lost all the numbers from last year – what would you do today?”
Assure them that shared costs are reflected appropriately in the budget—they’re not being penalized.
Emphasize that the difference between expense types isn’t a huge deal, except if it’s in COGS. So, let’s focus on how it should be.
Commit to reviewing actuals with them on an ongoing basis to increase trust.
Some people find it incredibly annoying to have slightly off numbers (even if you see them as inconsequential), and the time to achieve perfection is rarely worth it. Find a middle ground by establishing that what matters are results going forward.
The not-bought-in budgeter: “This is unrealistic…”
If you know that someone has only “hesitantly approved” their budget, go ahead and add in the CEO to the conversation. Often times, these budgeters will *want* to hit the targets but simply be fearful of a target miss costing them their jobs.
Emphasize the constructive nature of budgeting. This is a company problem. We can pull in anyone else needed to solve it.
Ask them what they need to be confident in the numbers and still deliver the results the company needs.
De-stress the situation. Ask how it “could happen,” or say these are the limits—in their experience, what other levers could we pull?
You need buy-in. And let’s face it—the targets could be unrealistic. Head this off early so you can re-allocate budgets if needed.
The bottom-up budgeter: “I need to budget item by item…”
Some people aren’t okay with estimates. However, going line by line can simply take too much time, add little value, and distract from the key numbers.
Present the pie chart again. Explain that both of your time should be focused on what matters.
If necessary, add a supplement to their budget which allows them to add anything to it (as long as it adds up to the major lines).
Explain that you will only be tracking at the code of account level, as that is the most detail that is possible.
Again, try to meet them halfway. If they want to do the work, even though you’ve explained how not to, allow them to do it but stress that the deadlines must be met.
The budgets-don’t-matter budgeter: “It’s all going to change…”
Yes, things will change and some people become disillusioned after several quarters of missing targets or changing strategies, but that doesn’t negate the fact that operating as a team towards a common goal takes planning.
Explain that planning and coordination impact the company and every other team. It’s not just you.
Emphasize that flexibility is encouraged, but chaos distracts from the business.
Encourage them to think about short term vs long term – can they budget for JUST the next quarter? Then little by little, help them extrapolate that out.
It’s a thin balance between “be perfect,” “be flexible,” and “nothing matters.” But there is a balance, and finding it is the difference between success and confusion.
The everyone-needs-to-be-included budgeter: “Every team member needs to be consulted…”
This is hard. And yes, everyone on the team should have some ownership of the budget. But practically, a department head needs to own their budget and this can’t be something they can delegate, no matter how overwhelmed they are feeling.
Explain that budgeting and resource control is their job. It should not be outsourced, as nobody else will be held responsible for them.
Walk through the complexity of needing to create many different budget templates, hide key data due to complexity, and how it would be very difficult to track, while adding little value.
Meet with them first, and allow them to schedule time to go through their budgets with the key team members involved, but again, this is for review, not creation.
Inclusiveness is welcome and appropriate where needed. But at the end of the day, budgeting is a core part of a leader’s job.
Conclusion
Everyone budgets differently. There are other types not mentioned, like the “I hate numbers” or “I’ve never budgeted before,” but similarly, you need to empathize with their style and address their needs to be a strong business partner. At the end of the day, your job is to make everyone comfortable with the plans and coordinate between departments to produce desired results. Without your understanding in this process, you’ll be left with teams completely unbought-in from the budget and then blaming each other relentlessly for the foreseeable future if results aren’t achieved.
Good luck.
Stories from the Trenches: Inside insights from Abacum’s team of seasoned finance professionals, sharing real tales of tackling financial challenges head-on.
