As the new year approaches, many founders and executive teams are in the throes of planning for FY23. But with economic uncertainty still looming, many founders are wondering about the best way to approach planning for next year.
To help, we spoke with two seasoned finance executives about their advice for crafting and adjusting an annual plan in today’s market.
Tim Cabral is the former CFO of Veeva Systems, the leader in cloud-based software for the global life sciences industry. Tim’s leadership and financial discipline helped propel the company to their IPO in 2013 and his expertise from more than 30 years in finance continues to add value today as a board member.
Kelly Steckelberg is the CFO of Zoom, the global leader in modern enterprise video communications. As the CFO of Cisco WebEx in 2008, she helped lead the company through the financial crisis and was later the CEO of Zoosk before joining Zoom in 2017. In the past five years, Kelly led Zoom through their IPO and has been instrumental in bringing Zoom to profitability.
Collectively, these two CFOs bring decades of experience leading executive teams through the annual planning process and have learned a textbooks-worth of knowledge and wisdom along the way. Read on for their top-line advice.
1.Your plan should be nimble and based on your current visibility
In good times and bad, Tim believes that one of the biggest mistakes founders and CFOs make when crafting their annual plan is getting too into the weeds. “You can go deep into the chart of accounts, look across all financial statements, line up metrics, and take your management team through a long and arduous process, but it’s unlikely that you’ll be more than 50% right. Focus on spending your planning session discussing options and outcomes instead of reading through past results.”
Startups and growth companies only have so much visibility, so Tim and Kelly advise that founders and finance leaders should aim to create a discussion with their plan rather than issue hardened guidance. “Create the plan knowing you will return to it and adjust once visibility improves. CFOs and CEOs should focus on the time period where they have the best visibility,” says Tim. “If it’s not a year, don’t create a plan for a year. Start with the half year, then graduate up. This is better than giving the illusion that you have the visibility you’ve had in years past.”
Kelly advises that instead of framing everything around the year, break up spend by quarter and allocate accordingly. "For example, instead of allocating annual headcount to your departments, release targets on a quarterly basis depending on the level of visibility you have."
Lastly, a plan takes as long as you let it. When organizations go through this process, they like to track how close they are to plan and chase perfect. Tim advises, “Just align on strategy, how to allocate capital, and how to measure the performance of the business, and then close the books.”
2. During uncertain times, be “appropriately aggressive”
There’s a perennial debate on how to think about the aggressiveness of your annual plan. Do you set a plan you know you can hit or exceed? Or set a stretch plan? Tim thinks there are pros and cons to either approach, but in uncertain times, companies tend to lean too conservative. “At Veeva, we leaned towards what I like to call appropriately aggressive, which was the right balance.”
Though it may sound counterintuitive, the reverse is true for growth times, too. When everything is up and to the right, companies should take a more conservative approach to ensure they don’t need to make huge cuts during the first sign of headwinds.
3. Don’t let scenario-based planning make you complacent
During uncertain times, scenario-based planning can be a good tool to project a few potential outcomes depending on where the economy goes.
Tim agrees that creating a range is likely more productive than planning for a single number. Creating a range will give you the latitude to think through the business drivers that would push you down or elevate you up. “If you’re going to sign up for that, make sure that you don’t get lazy. Don’t just add plus or minus 10% to your baseline number. There has to be a completely different fact pattern that drives us to the high or low, so the upside and downside can’t be equal.”
Tim recommends creating a high and a low plan based on what you know today. Then, think about your spending plan; if your spending plan is attached to your high plan, you will need to make changes.
“At the end of the day, your plan needs to appropriately articulate the strategy you want to go after,” says Kelly. If nothing more, an appropriate scenario plan creates a really interesting conversation which is one of the most important parts of the planning process.
4. Your plan should be the company’s plan, not finance’s plan
Whether your plan is being put together by your CFO, COO, CRO, or VP of Strategy—this person should know at least 50-75% of what your targets or objectives are. Kelly recommends that this person put a rough plan down on paper and approach stakeholders individually to get their reactions and feedback before bringing the plan to the broader executive staff group.
Since a plan is only as good as it’s executed, your annual plan should be a collective goal that everyone in the company is accountable for. “Financial plans are not finance’s numbers, they are the company’s numbers. Whoever is responsible for executing against the revenue plan needs to be bought-in from the beginning,” says Kelly.
5. Don’t make blanket cuts—focus on what drives revenue and what you can live without
Both Kelly and Tim agree that creating discipline around spend management and capital management is critical in any economy. But for companies who are over-committed and need to make cuts, the question of where to cut back is often the trickiest.
No business is exactly alike, but you should have a sense of where the most critical capital allocations are and which allocations may not be critical. To find the low-hanging fruit, Tim suggests asking, “What can we live without?” A lot of companies will target travel, but if your business is dependent upon face-to-face relationships with customers, for example, if you need to demo your product in a way that can’t be done virtually, or you need in-person customer events, then don’t target travel as the thing to cut. Know your company’s needs and figure out where you can focus your spending and what you can live without.
Some organizations will reduce their workforce across the entire company, which signals that every single department is equally contributing to leverage. “This doesn’t make sense,” says Tim. Instead of making blanket cuts across your business, think about which functions are driving the most leverage and reduce accordingly.
It’s important to add that if you do target discretionary areas (such as travel) the leadership team needs to model the behavior change they’re asking the company to adopt. “If leadership cuts spending but continue to act as they did during the growth days, that’s wrong,” says Tim. “Leadership needs to meet a higher bar than everyone else in the company.”
Lastly, if you need to take a more aggressive action around spending, you should do your best to make sure it’s not needed to be done again. As much as you can, try to do a material action only once.
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