As business owners and finance leaders, we’re having to deal with a lot. After Covid and Brexit, we thought it would be smooth sailing and we can get back to “normal”. However, with the current economic uncertainty, we continue managing cautious spending and reactive decision-making.
However, even with everything that is thrown at us, aligning financial goals with the business strategy gives you a competitive advantage.
Being a Startup Fractional CFO, I love a spreadsheet – but long before clicking open on a new fresh file there is some work to do. Ideally we need to start with the end in mind.
Start with the end: vision, mission, and strategy first
The budget does not set the strategy. Instead it checks that the business goals make financial sense. Before any financial model is attempted the business must be very clear on “The vision” (where are we going?), “The mission” (what are we solving?), and “The strategic goals” (3-5 long term goals to get to the vision).
What does the business need to achieve over the coming year(s)? These can be both financial and non-financial. For example, hitting a revenue target or profitability (financial) or achieving a customer satisfaction score or product market fit (non-financial).
Startups often set financial targets before they’ve defined strategic priorities. Flip it. Strategy first, spreadsheet second.
Next up: operational goals & resource requirements
Once you know what you’re going to achieve, map how you’re going to achieve this backwards.
What does the business need to achieve this year to hit the strategic goals?
What does each department need to achieve to support these goals? Are there product launches, additional headcount needs, process improvements or marketing spend or efficiencies?
Understand what resources each department needs to roll out these plans.
Translate into financial goals & reality check
Once the business has the strategic and operational goals and plans in place, the budget model can then be created to see if these plans make financial sense.
Do these plans achieve the financial goals the business has set?
What do these plans mean for revenue, margin, hiring, cash?
Does the business need to revisit the assumptions, ROI expectations, cost benchmarks and resource allocations?
This is when the finance team and model can steer the business into the right direction.
Due to economic uncertainty, there does need to be scenario testing within the budget framework. Any changes such as taxes (tariffs anyone?), shifts in customer demand due to the cost of living or access to capital availability need to be considered.
Finance leaders do need to stress test the plans that are put in place and build out scenarios (worst case and best case) rather than just hope for the best. This is especially true for startups when the budget is often filled with assumptions as new products, new territories, and net channels are being introduced regularly that may not even have product market fit yet. So the volatility of the original plans changing are quite high. Budgets set in January may not even be relevant by April, so an element of flexibility is required. Especially when managing tight cashflow forecasts.
Set clear priorities and communicate constantly
Once strategic and operational goals and the corresponding budget is initially created, job done, right? Wrong.
Getting alignment with the rest of the business means that the goals are regularly reviewed and updates need to be communicated regularly.
Choose 3–5 key financial KPIs that everyone understands and can rally around.
Not only that, but each department needs to understand what their goals are (generally the department head was part of the discussion) and which KPIs they need to achieve. Ideally, each department knows the work that they do moves one of the key metrics that the business is tracking.
Finance as a strategic enabler
If starting with the end in mind, the finance budget enables the business to achieve the strategic goals and vision, rather than just controlling the spend.
Even in unpredictable markets, businesses that align financial goals with strategy are more agile and resilient.
