Budgeting and forecasting are among the most crucial tasks that the finance teams of start-ups undertake. These processes do not only shape the financial path of the company but also influence strategic decisions.
What sets top-performing finance teams apart in this aspect? Let's explore.
Top-performing finance teams create budgets that are driver-built, meaning they’re based on key business drivers. These drivers could include sales volumes, user numbers, conversion rates, among others. This approach aligns the budget with real business activities and makes it responsive to changes in those activities.
Once the budget has been built, a top-down review is essential. This review usually involves the CEO, department heads, and the finance team. It's an opportunity to align the budget with overall business objectives, challenge assumptions, and make sure that every department is on the same page.
Documentation of assumptions
Transparency is crucial in budgeting. This is why top-performing finance teams document their assumptions clearly. It ensures everyone understands the basis for the numbers and provides a reference point when actuals differ from budgeted figures.
Alignment with sector-focused metrics
Given that different sectors have unique financial dynamics, it's essential to align budgets with sector-focused metrics. By doing this, finance teams ensure that the budget reflects industry realities and benchmarks.
Top-performing finance teams understand the importance of getting the board's sign-off on the budget. It's a crucial step that ensures alignment between management and the board, instils confidence, and fosters collective ownership of the budget.
As the business environment changes, so should the budget. Regular re-forecasting allows finance teams to adjust the budget in line with new information, maintaining its relevance and usefulness.
A robust budgeting process is important to help make sure your start-up’s financial goals align with your overall strategy. It's not just about crunching numbers. It's about creating a budget that's driver-built, thoroughly reviewed from the top down, clearly documented, and aligned with sector-focused metrics. It's about having a budget that gets board sign-off and is updated regularly to keep it fresh and relevant.
By striving for a thorough, transparent budgeting process that closely ties the budget to the company's overall goals, your finance team can create a roadmap that guides your start-up towards its financial objectives. It's this strategic approach to budgeting and forecasting that sets top-performing finance teams apart.