A great finance team can answer their business’ hardest questions before anyone else in the company has even thought of them.
Difficult? Yes. But not impossible. And finance is perhaps the only team in a company that can do this.
The finance team knows which salespeople are hitting quota, which marketing channels are working, and when the company will run out of money. More than just the numbers, though, they’re also privy to the softer forces in the business — which teams are underperforming, which managers aren’t scaling, and which employees are in danger of quitting.
Together, this gives finance an unparalleled holistic view into the business: the best vantage point for guiding the decisions that will affect the trajectory of the company.
With many finance teams moving up to this echelon of strategic importance, the question becomes:
What’s stopping every finance team from joining them on their rise?
What's wrong with business planning processes?
Plans are disconnected from operational data
If identifying key trends from data is so critical for finance teams to drive informed decisions, why do less than 40% of finance teams leverage operational data in their planning processes?
The answer: operational data is inaccessible.
Financial data is tightly controlled, audited regularly, and has a fixed structure: the Chart of Accounts. Operational data is the opposite — dozens of source systems (CRM, product databases, analytics tools, etc), each capturing different data in different formats, and each owned and maintained by different teams (if at all).
In the best case, operational data feeds into a data warehouse, which becomes the single source-of-truth for company data. This is pulled into a business intelligence (BI) tool, where it can be visualised by teams.
But for the finance team, there are 2 issues:
- Planning is done in spreadsheets (not BI tools) and it’s not easy to connect a data warehouse to Excel/Google Sheets
- Financial data (typically from an ERP system) is almost never fed into the data warehouse. Pulling data from an ERP system every month is a significant task in itself, so finance teams don’t have the resources to also grapple with a data warehouse.
What this means is that financial plans are built without enough detail, relying on operational assumptions that are detached from reality, and without the ability to run scenarios based on true operational business drivers to make decisions.
Team plans are disconnected from one another
Modern finance teams have started to lean into business partnering, working closely with stakeholders to improve the quality of analysis and decision-making. But many haven’t taken it far enough.
Today’s business partnering focuses on collaboration with individual stakeholders to better optimize financial plans. Larger companies often have a dedicated Finance Business Partner for each team (e.g. Sales, Marketing, Engineering, Product), while smaller companies may have a single FP&A Analyst working directly with each team lead.
This is clearly better than building financial plans in a silo with little involvement from business teams. But it falls short due to a lack of collaboration across teams and a set of plans and budgets that are disconnected from each other.
But can’t you just connect your spreadsheet tabs with formulas?
Yes, in theory. This works really well for companies under 50 people, and maybe 100-person companies at a stretch. But here you’ll start hitting some roadblocks.
Sensitive data → multiple files → disconnected plans
As the company grows, you won’t be able to share everything with everyone. Example: headcount models with sensitive salary data. So you’ll break those sensitive plans out into separate spreadsheet files that only a few people can access.
You now have multiple files, and if you’ve ever tried to use Workbook Links (Excel) or IMPORTRANGE (Sheets), you’ll know that these are brittle and unreliable, and that it’s much easier to copy-paste the right numbers into your master plan file.
You now have a lot of hardcoded numbers in your model. Your plans are no longer connected and will go out-of-date as soon as you make a change in one place.
More complexity → multiple files → disconnected plans
As your company’s operations expand — new product lines, new geographies, new segments — your financial models and plans will grow in complexity.
Suppose you have 2 products, operating across 3 customer segments (e.g. SMB, mid-market, enterprise), in 4 regions (e.g. North America, EMEA, APAC, Other). You now have 24 (2x3x4) individual “slices” of your revenue model, each with, say 10 assumptions and 30 lines of calculations.
In a single spreadsheet tab, this revenue model will be hard to navigate and harder to communicate — the EMEA Enterprise Sales Lead shouldn’t be getting bogged down into the numbers from every other sales team.
So you break the revenue model up across 6 different tabs (one per region). At this point it would be too messy to include the rest of your operating model — marketing, operational expenses, etc. — in the same file, so you end up breaking out into a few different files.
As above, you end up with hardcoded numbers and disconnected plans.
Forecast accuracy isn’t tracked and audited regularly
So you’ve got a financial plan ready, and you’re forecasting revenue, expenses, and all the rest of it, out into the next 12 months. But are your forecasts accurate?
The purpose of forecasting is to give you a line-of-sight to where the business is going, so that you can help department leaders to make the right decisions to get there. If your forecast is inaccurate, then you’ll probably be making worse decisions, leading to poorer resource allocation.
Forecasting once isn’t enough — every team gets things wrong in their assumptions and models, and market conditions are constantly evolving. It’s table stakes for an FP&A team to track forecast accuracy and communicate it to the business (e.g. departmental budget-vs-actuals). But if finance teams don’t truly accountable for accurate forecasts, then this trickles down into the rest of the business — business partners mis-allocate resources, don’t hit their numbers, and lost trust in the finance team as a true partner in key decisions.
The best FP&A teams are constantly learning from the variances and improving their forecasts every month, to guide the business in the right direction. And in turn, the business sees the value of finance and trusts the finance team as a strategic partner.
Important scenarios aren't modelled out in detail
To make good decisions, you first need to ask good questions —
What happens if we push those hires our to next quarter? Should we double our paid search spend? Would it be more profitable to switch to a usage-based pricing model?
Your financial model should be able to answer these questions via scenario planning.
Scenario planning is the process of generating alternate versions of your model with different assumptions, and comparing them against each other to understand their tradeoffs and see which is best.
Trusted FP&A teams field these ‘what-if?’ questions from business leaders on a daily basis, and 2 things are crucial in answering them:
- Time — these questions are often time-sensitive, needed for active projects that are moving quickly or upcoming meetings that can’t be pushed
- Accuracy — business leaders need to know that they can trust the answers that finance provides to these questions
Spreadsheets aren’t designed with scenario planning in mind, so it’s notoriously difficult to layer and compare multiple scenarios in Excel/Sheets.
Comparing scenarios side-by-side in spreadsheets requires a lot of duplication — 3 scenarios would mean 3 copies of every formula. You can avoid this duplication by creating a dropdown (via data validation) to switch between scenarios (via SWITCH/IF formulas), but you then lose the ability to view multiple scenarios together.
The bottom line: scenario planning is time-intensive and error-prone in spreadsheets. Because of its difficulty, teams can only explore very limited scenarios, which limits the FP&A team’s ability to support the business, thereby limiting the business’ agility in making decisions.
The Solution: Revenue-Led Planning
We’ve worked with 100+ high-growth finance and FP&A teams over the past 2 years at Causal, becoming intimately familiar with their technical and organisational challenges, and partnering to solve them.
This has shown us what world-class FP&A can look like, and has let us hone in on the principles and best-practices to get there. We’ve condensed these down into an actionable framework that FP&A teams can implement: Revenue-Led Planning (RLP).
RLP has one simple principle:
An accurate revenue model should be the core driver of your operating plan.
Why revenue? Because chances are, that’s what your company’s targets are based on. Revenue is how you measure progress internally, it’s what you commit to your board, and it’s the first number that investors will look at during your next fundraise.
Given this, you should have a crystal-clear view of your revenue growth over the next 12 months, and this should dictate the rest of your operating plan.
The RLP principle has many implications for how you set up your systems, build your financial models, and run your FP&A processes.
Business plans should be truly connected
The best teams row in the same direction, towards the same goal. Plans and forecasts will evolve over time, and if they’re disconnected, they’ll end up out-of-date with one another.
Your company’s operating plan should be fully connected, letting you understand how changes in one part (e.g. your revenue model) affect other parts (e.g. your hiring plan).
Forecast accuracy should be a KPI for the FP&A team
Trust between FP&A and the business is paramount. Forecast accuracy tells the business how much they can trust your financial model/plan.
If your forecasts aren’t accurate, then the business (rightly) won’t trust the operating plan and will stop using it as a tool to make decisions. Once that trust is broken, it will take time to re-build.
To build and maintain this trust, ‘forecast accuracy’ should be a core KPI owned by the FP&A team.
The 1st-order effect of this will be that forecast accuracy is measured and tracked on a monthly basis to report on this KPI. The 2nd-order effect is that to improve this KPI, forecasts will be scrutinised and updated regularly, uncovering insights about assumptions which are no longer valid, new factors to take into account, and new data to collect.
Operational data should feed in to the revenue model
Your revenue model should reflect the touch-points in your customer’s journey, and none of the data for those touch-points is in your accounting/ERP system.
Your model assumptions should be informed by real data, and these assumptions and downstream metrics should be tracked and compared against actuals each month.
For this to happen efficiently, you should have a live data feed from your operational systems (CRM, data warehouse, product database, etc) into your financial model. Manual workflows involving multiple CSV exports and transformations will make this prohibitively difficult, and will inevitably fall by the wayside amongst other priorities.
Scenario planning should happen in real-time
I’ve noticed that if I respond to people’s emails quickly, they send me more emails. The sender learns to expect a response, and that expectation spurs them to write. That is, speed itself draws emails out of them, because the projected cost of the exchange in their mind is low. They know they’ll get something for their effort. It’ll happen so fast they can already taste it. — from Speed matters: Why working quickly is more important than it seems
Scenario planning is the main tool in your arsenal for answering business leaders’ questions and providing pro-active recommendations to them. If business leaders know it takes 3 days for Finance to “run the numbers” and get back to them, their partnership with Finance will be limited to the narrow subset of things that are non-urgent and can’t be roughly figured out on their own.
The business should be empowered to run basic scenarios on their own (”What happens if we increase our Google ad spend in December?”), and as questions arise in meetings with FP&A, these should be answerable in real-time.
This will dramatically increase the number of ideas people feel like they can have, and get everyone around the table thinking much more actively about the best strategy for their team and the business, as well as dramatically increase their level of partnership with FP&A.
Business planning processes are holding finance teams back from being what everyone wants them to be: the team who can help you answer your hardest questions, before you’ve even thought of them.
Revenue-led-planning is a framework for leveling up your business planning process to enable this, by
- Building connected business plans driven by revenue models
- Integrating operational data into financials models
- Tracking and improving forecast accuracy as a core KPI for FP&A
- Providing real-time scenario planning capabilities to the company
You can’t implement Revenue-led Planning overnight — it will require both organisational change and technology change. But if you start having those internal conversations and evaluating FP&A vendors today, you should be able to get there within 3 months or so.