Before founding Trace, I worked alongside David Sacks, who recently wrote a seminal piece on how startups can overcome organizational chaos with an operating playbook he calls “The Cadence.” The memo went viral because, well, most startups are a mess. David positions two primary calendars for a business to operate on – the Product calendar and the Finance calendar. I will build on David’s memo with a deeper dive into the Finance Calendar, an operating playbook for Corporate Finance.

The Finance Calendar lays the foundation for successful business partnerships by setting shared expectations and a vision for success.

As with any playbook, you want to have straightforward methods to get things done. More so than any other business function, Finance has to work well with every department to be effective. Establishing a cadence with budget owners is the most challenging thing a growth-stage Finance team has to do. Every budget owner has different business needs, levels of experience, and expectations. Maintaining these relationships and being able to influence financial decisions is even more difficult at scale. An SVP of FP&A at a publicly-traded $30B+ company recently told me, “Building better business partnerships is the number one priority for us this year and moving forward. That’s our finance transformation goal.” 

The Finance Calendar lays the foundation for successful business partnerships by setting shared expectations and a vision for success. The playbook I detail below has been influenced by my experience building at Facebook, leading Finance at hyper-growth mid-market companies, and interviews with hundreds of Finance leaders as we’ve built Trace. Using the playbook at various points in my career has helped achieve industry-leading productivity levels, earned a seat in board rooms with some of the best in tech, and received praise from my CEOs, investors, and peers.

The Finance Calendar becomes essential once you have budget owners, clear lines of accountability, and autonomous decision-making – this naturally happens around 50-100 employees. At this point, financial planning can no longer be Finance teams building plans in isolation – it has to be a collaborative process with business leaders owning their goals and delivering on their targets. With scale, the expectations for executing your financial plans with high degrees of accuracy become increasingly important. The Finance Calendar can be implemented early and scales well with more budget owners and bigger Finance teams.

A successful Finance calendar aligns the board, executive leadership team, and employees on their priorities, resources, and tactics to execute. It promotes collaboration and accountability for everyone involved. If you’re the type of Finance team that builds plans in isolation and then just acts like a scrooge, this isn’t for you. Like great managers, the best Finance leaders inspire peak performance by empowering people. 

Here are a few more principles that guide the Finance Calendar:

  • Most companies update their plans as-needed, especially growth stage. Annual budgets are a relic of the past, and continuous plan are taking over for modern, dynamic businesses.
  • Collaboration is most important where people make decisions –– i.e., the workflows and tools people use to hire people, buy things, and manage projects.
  • Your business partners and employees don’t care about GAAP or departments and accounts. They care about creating plans that help them execute.

Now, let’s get into it. Finance has two primary cycles – the annual calendar and the monthly calendar. 

  • Annual Calendar The annual calendar aligns with your board meeting schedule and maps out key initiatives throughout the year, such as long-range strategic planning and quarterly planning cycles. 
  • Monthly Calendar The monthly calendar aligns with your accounting close process and maps out inter-month activities such as operating reviews and financial plan updates.

The Annual Calendar

Below is a summary of a typical board meeting cadence with key finance activities. Assume we have a January 31 fiscal-year-end, and our board meeting is three weeks after each quarter ends.

Share the Finance Playbook Slides with your CFO. Download them here.


August – Long-Range Plan (LRP)

Unintuitively, the annual calendar starts in the second half of the year with a strategic long-range planning process. The CEO and CFO use long-range plans to support and facilitate discussions about strategic priorities and what’s need to execute. It’s typically a 3-5 year top-down exercise completed by Finance, the CEO, and other key executives such as the COO. The purpose is to plan for long-term initiatives, determine capital requirements, and set high-level financial targets. 

A big takeaway for Finance is to get feedback on how the next year should look. First-year guidance helps Finance set financial targets with business leaders, so they know the boundaries for next year’s operating plan. Depending on your business, you may want to answer any of the following questions: 

  • What do we have to build to deliver on our strategy?
  • How fast do we want to grow?
  • What margin are we aiming to hit?
  • What’s our burn rate or breakeven target?
  • How aggressive will we be in gaining market share?
  • What major investments do we need to hit our long-term goals?

Finance teams build Corporate Finance models that facilitate the long range planning process. These models are mostly top-down, but should always be built on top of granular and up-to-date information. Finance teams should accompany their financial projections with Market Analysis or Comparable Company Benchmarks. More on these three primary deliverables below:

Corporate Finance Model & Top-Down Planning

Finance teams build Corporate Finance models from high-level assumptions, use a 3-5 year time horizon, and can easily produce multiple scenarios. Corporate Finance models are insightful when they understand and sensitize the critical levers for your strategic priorities. Once you identify what levers you want to play with, you can work backward to build the plan. In a high level example, let’s consider a business plan focused on growth and another for a company focused on margins.

LRP Planning for growth targets:

  1. Set the revenue growth targets.
  2. Set expectations for sales & marketing efficiency and customer retention. Forecast Gross Margin & S&M. 
  3. Define R&D resource requirements or set investment targets.
  4. Define the G&A infrastructure needed to support the business. 
  5. Forecast cash flow and income profit. 

LRP Planning for margin targets:

  1. Set the runway or margin targets.
  2. Forecast mandatory committed expenses and G&A.
  3. Prioritize investments in growth and product development/maintenance.
  4. Set the expectations for sales & marketing efficiency and customer retention.
  5. Forecast revenue growth. 

Market Analysis

At Zenefits, I took two weeks to read the top 3-5 market research reports and the Qs and Ks of our publicly-traded competitors. I synthesized my research into a 2-page market analysis memo that I shared with our leadership team. The study gave us intel about market growth and opportunities, strategic focus, acquisitions, investment plans, and operational tactics. 

Here’s a competitive benchmarking slide we included in our board materials:


Salesforce includes a similar snapshot of public acquisition targets:

Salesforce board slide that lists potential acquisition targets of public companies.
Source: https://www.businessinsider.com/leaked-salesforce-email-adobe-acquisition-list-2016-10


Benchmarking

Financial plans are built based on your strategy and resources, but it’s crucial to compare past and planned financial performance to comparable businesses. We built a free Public Company Benchmarking Tool to save people time from manually pulling data or paying for expensive data sources. Our tool is unlike any other resource because it helps you compare core financial metrics based on your revenue scale, periods from IPO, and periods from the business’s founding date. Bookmark our Catalog of Benchmarks to stay up-to-date with the best list of benchmark resources.

Benchmarks are nuggets of gold for Finance and can help define your financial framework (i.e. target free cash flow margin expansion). Here’s one of my favorite examples of a financial framework from Atlassian:

Source: https://investors.atlassian.com/events-and-presentations/default.aspx

November – Operating Plan

Now that we’ve set a big picture direction with our LRP, we can socialize targets with business teams and start the next year’s operational planning process. The Operating Plan is a collaborative bottom-up process with budget owners and hiring managers. budget owners get top-down targets and begin the process of constructing their plans for the following year. With everyone’s requests and trade-offs, we now have a starting point to understand priorities and begin the evaluation. All of this work leads up to set an annual plan or budget for the following year. 

Finance teams with a great process will start in the middle of October and finish before Thanksgiving. Typically, this time of the year is vital for product roadmap and marketing planning. Ideally, finance activities shouldn’t bog down the few weeks between the holidays so business teams can close out the year strong and get ready for the new year. 


The keys to running an efficient and effective Operating Plan process include:

  • Run a collaborative bottoms-up planning process. 
  • Run a continuous (zero-based) planning cycle throughout the year.
  • Keep a single source-of-truth for financial decisions. 

Run a collaborative bottoms-up planning process. 

Finance teams build fast and accurate operating plans when collaboration is high, and information flows smoothly. A budget owner should start the planning process with a clear understanding of their financial targets and currently committed spending. A budget is primarily made up of payroll, vendor spending, and projects. It’s easy to understand a budget owners payroll spending because team data is easy to get and forecast. It’s challenging to understand committed spending to vendors and projects given the ERP and Spend Management systems data. If your finance team doesn’t have the bandwidth for vendor-level forecasting or manual projecting tracking, Trace’s spend management product automates purchase forecasting and project tracking. 

Once a Finance team gives visibility to financial targets and committed spending, then budget owners know what’s available to allocate. Finance teams and budget owners should be able to measure new budget requests in real-time against the targets. Everyone should submit budget requests in a single place so they can be reviewed, prioritized, and approved. The finance team should build budget requests templates to be added to financial models to complete the planning process. 

Run a continuous (zero-based) planning cycle throughout the year.

Continuous planning is the process of auditing existing budget lines and analyzing new budget requests on an ongoing basis. The reality for most businesses, especially startups, is that new priorities and requests will come in sporadically. The idea behind continuous planning is to adjust prioritization and resource allocation constantly. Some call this zero-based budgeting because you rebuild your prioritization from the ground up. 

Most people who try continuous planning or zero-based budgeting fail because they’re overwhelmed with making sense of what’s committed, what’s new, and how it all adds up. The challenge is a financial model is a snapshot of a point in time, and it’s static. Up-to-date information lives with decision-makers and their workflows to get things done, such as hiring operations or procurement. Trace is rethinking this approach by integrating financial plans and operational workflows so that planning and decision-making isn’t a once-a-month or once-a-quarter exercise. It’s real-time and intertwined with tactical decision-making. 

Give people clear targets, give them tools to see how their decisions impact their targets, and make their financial information accessible and easily understood. If you run a tight process throughout the year and have up-to-date requests, then they won’t be a huge mess to catch up on. Once your tools and information are up to speed, set hard and fast deadlines for completing the plan. Bottoms-up budgeting should take days or weeks, not months.

Keep a single source-of-truth for financial decisions.

You ran an efficient process and locked the budget. Everything is summarized beautifully in a presentation, and it’s converted to PDF for distribution. Now what? The reality is financial performance isn’t about a plan. It’s execution. It’s the day-to-day decision-making that translates to our financial results. The goal of Finance isn’t to build great models. It’s to influence and drive better decision-making. 

Finance teams must start by keeping a single source-of-truth for decisions. If Finance, HR, budget owners, et al. all have different hiring plan spreadsheets, then you’ve already lost. The challenge is requests come in a lot of variety, and it’s challenging to maintain a master list. For example, headcount approval may happen in the ATS, purchasing in the ERP, budget requests in models, ad-hoc requests over slack, and email. In the future, Finance Management tools will give Finance teams more control over their workflows and decision-making. 

February – Budget

The February board meeting focuses on the operating plan and priorities for the next year. Some businesses will get board approval of the year’s annual plan in the February meeting, while others will hold a short session before the end of the fiscal year to get sign-off. In either case, the board has been prepared well in advance since we reviewed long-range plans and got year-1 guidance in our August meeting, and shared a bottoms-up operating plan with input from executives in the November meeting.

The CEO can use the February board meetings to focus on the year ahead since the operating plan has been completed and socialized. Executives can share their plans, discuss challenges and opportunities, and set the tone for executing in the new year. 

From a Finance perspective, now is an excellent time to prepare scenarios for your annual plan. Finance teams now have complete data for the prior year and your executives’ latest thinking on what’s to come. The purpose of running scenarios is to think about what happens if you exceed plan or miss plan. If a course correction is needed, there’s already baseline thinking about what needs to happen. 

May – Forecast

The May board meeting is our first look into how we’re doing against our annual plan. Here we come up with a Rolling Forecast, a collaborative exercise with executives to update our plan. The reality for most growth-stage businesses is that there will be volatility in their plans and priorities. In some cases, businesses reset their goals, and others will hold to annual targets.

If Q1 out-performed or under-performed, then we may have to course correct. In this event, having scenarios in advance can help. If we’re 10% under our plan and the trend looks to be continuing based on our forecast, do we keep to expense plans, or do we correct? Alternatively, if things are going better than expected, you may want to invest more to build on the momentum. Input from executives to create the rolling forecast will inform these decisions.

Change in targets or plans can be frustrating for executives, especially new executives who don’t have a lot of experience with the financial planning process. The decisions trickle down from the executive down to their managers or individual contributors who might be losing a headcount, project, or vendor they were expecting. One useful approach to set expectations is to keep executives focused on derivative financial targets such as % of Revenue. Rather than having your Head of Engineering think about their budget as $10M per quarter, they should be thinking about their budget as 20% of Revenue. Now they understand that volatility in Revenue will require them to be fluid in their expectations of resources. 

The Monthly Calendar

Finance lives on a monthly cadence that revolves around when the accounting team closes the books. Like the annual calendar, a successful monthly calendar is about setting clear expectations with budget owners and operating consistently. Each department will have subtleties, but generally, a monthly calendar will have 3 primary activities completed on business days since the month began. The timeline will depend on the complexity of your business and the strength of your team.

Share the Finance Playbook Slides with your CFO. Download them here.

Accounting Close

The accounting close is a robust and complicated process. For the sake of this memo, we’ll stay focused on the components that require collaboration with business teams, such as booking accruals and analyzing preliminary financials.

At the end of the month, FP&A will work with the owners of purchase requests and their vendors to estimate accrual entries. Accountants must record journal entries for transactions that have occurred but have not been billed by the vendor. Most financial professionals are annoyed with tracking down and recording accruals, but it’s critical to maintain your financial records’ integrity. When a Finance team has source-of-truth for what’s approved and good visibility into decisions made, it can make the accrual process a breeze. 

Finance Review

Once the books are closed, financial reporting and analysis can begin by the FP&A team. The CEO, CFO, and board members should look to understand two primary questions:

  • What happened that was different from what we expected?
  • What happened that we didn’t expect?

These two questions get to the root of any variances we experienced from our plans. Like a good detective, the key to understanding the cause is to ask “why” repeatedly. A great analyst will be able to provide explanations quickly. A rockstar analyst is never surprised because they’re so deeply involved with their business partners’ decisions.

A typical analyst’s challenge to understanding variances is that it requires a reconciliation between their financial model and ERP financial statements. It’s easy for an analyst to analyze data at a summary level, but it’s difficult to get the root effect. Deeper digging often requires navigating multiple systems, digging through contracts, or conversing with the person responsible for a particular transaction. 

At Trace, we’ve rebuilt traditional financial analytics in two fundamental ways:

  1. We started with decision-making at the unit level and built analytics on top.
  2. We provide decision-makers with analytics where they execute.

Trace’s foundation is workflows that manage a financial plan’s fundamental building blocks: hiring, purchasing, and projects. With this at our core, we layered on budgets and actuals to provide unprecedented depth in analytics. Unlike any financial system, we’re able to connect the dots from budget to actuals and drill-down to the specific decision that translated to our financial results.

Finance teams most often provide financial analysis by way of spreadsheets or presentations. Unfortunately, that leaves decision-makers flying blind as they execute. We believe that the best place for financial analysis is when and where people make decisions. Not surprisingly, top Finance leaders are starting to demand this:


Planning Close

Most Finance teams maintain a rolling forecast or best estimate plan. A rolling forecast is the de facto standard for keeping up with the pace of a growth-stage business and for any business during times of volatility (i.e., COVID). In some cases, it will be an exercise completed by Finance alone to roll forward assumptions for the next 12 months. In other cases, a Finance team will solicit input from budget owners (a la the continuous planning exercise we described above). 

Regardless of the plan type, a finance team needs sound operations to keep a lean and accurate planning cycle. The primary areas of focus include:

  • Headcount Management
  • Spend Audits
  • Project Tracking

Headcount Management

Great Finance teams understand that the vast majority of their operating expenses are related to headcount. Despite this, most finance teams struggle with headcount management because they lack a single source-of-truth for what’s approved and struggle to understand movements (i.e., transfers, terms, leaves, etc.). Businesses will often have an expensive weekly or bi-weekly meeting with Finance, HR, Recruiting, and hiring managers to reconcile and update hiring plans. People like to maintain their own spreadsheets, and ATS systems may have multiple roles open for a single approved headcount. Adding to the challenge is that it’s difficult to track and anticipate roles that open or close due to transfers, terminations, or leaves of absence.

In my experience, Finance teams and their business partners can waste a ton of time on headcount management. Trace solves this by providing a single source-of-truth for headcount management that eliminates busywork and improves accuracy. 

Spend Audits

Finance teams can create fast and accurate financial plans when they routinely audit their spending. Like the much-chagrined accrual process, auditing your spending is about updating your purchases for key milestones such as accounting close, renewal dates, or over/underspending. Interestingly, I’ve met many technology CFO’s that are more concerned with underspending in marketing due to its impact on growth. Keeping continuous tabs on committed spending is a fiduciary responsibility. If it’s done right, it can radically reduce the time to create financial plans and improve financial performance. 

Finance teams struggle to implement spend audits because it’s difficult to understand who’s responsible for what, to know and track the triggers of a spending audit, and to give employees a simple way to complete the work. If done correctly, it can save spenders and budget owners a lot of time, eliminate wasted spending, and improve the accuracy of financial plans. Trace helps you sunset the old PO-process and uses spend data to drive efficiency in procurement, FP&A, and accounting. 

Project Tracking

Tracking project spending is one of the most laborious tasks for budget owners, especially in marketing. The last thing a Finance team wants to do is leave their business partners to track budgets themselves. It’s terrible when they don’t do it and worse when they spend a bunch of time doing it. You want your marketer’s marketing, not tracking project spending. When you don’t follow your project-related spending, you have limited visibility to course-correct on the fly and still need to tally everything up for the next budget or reporting cycle. 

Summary

A disciplined approach to the Finance Calendar is the best way for a CFO to optimize financial performance. Clear expectations, autonomy, and the right visibility will empower decision-makers to execute to their fullest potential. It will also give current and future stakeholders of the business (employees, executives, investors, etc.) more confidence in Finance and the business as a whole.

The obvious challenge is execution, especially at earlier stages of a business when resources are limited, the priority is to grow or optimize resource allocation at scale. Trace is here to help. We have a clear vision for the Future of Finance, and we built our tools to help you execute the Finance Calendar.

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