THE

BUDGETING
SURVIVAL
GUIDE:
How to Prepare for
Budgeting Season?
Why collaboration is the key to a successful budget, the tools needed
+ tips from the Finance leaders at StackOverflow, Ironclad, Landing,
Taxfix, and more!
FO ELBAT
STNETNOC
03
What is budgeting?

04
Why is budgeting important?

05
How to prepare for budgeting season?

06 Be clear about the company goals

07 Understand the business
07 Involve Stakeholders
08 Define the output
08 Plan ahead

09
Which budgeting software should I use?

10
How can Layer help you?
 03

HOW TO
?
PREPARE FOR
BUDGETING
SEASON?
A budget can have various forms, ranging from
Ready or not, the a simple overview of costs by category or

budgeting season is department to complete financial statements,

including the Income Statement, Balance
right around the Sheet, and Cash Flow Statement. Most
budgets map out a company's estimated
corner. income and expenses.

Annual budgeting can be a real struggle,
but it can also be pretty straightforward.
That is why preparation is integral for a
smooth budgeting process.
In this guide, we will take you through
what you need to know to get ready for
budgeting season, why collaboration is
the key to a successful budget, and
how implementing the right tools and
process is crucial to help you make it
through the process without a hitch.
We also talked to a number of
experienced CFOs and finance
managers of some of the most
innovative tech companies, such as
StackOverflow, Ironclad, Landing, and
Taxfix, to name a few, who shared
insights into their processes as well as
tips and tricks to guide you through it.
In essence, your budget is your company's
financial roadmap, ensuring that you'll fund
your current and future plans, understand
performance and cost drivers so you'll make
better financial decisions.
Budgeting helps you translate your business
goals into a financial plan and consider
business aspects and answer questions
regarding your:
Goals: What do you want to achieve? (e.g.,
top-line goals, margin improvements, etc.)
Strategy: How will you achieve your goals?
(e.g., entering new markets, increasing
marketing spend, adjusting pricing, etc.)
Metrics: What are your input and output
metrics? (key drivers and KPIs of the
business)

What is budgeting?

Simply put, budgeting is the process of

creating a budget for an upcoming
period. This is typically done annually
(for the next year or multiple years), but
many companies also prepare or revise
budgets on a quarterly or even monthly
basis.

Why is
budgeting
important?
Creating a budget is essential for any
business, no matter what stage it is in. There
are multiple reasons why creating and
managing a budget is crucial.
Transparency
A budget creates transparency both for
internal stakeholders (a company's
employees) and external stakeholders
(e.g., investors). Furthermore, the process
of preparing a budget results in alignment
within and across teams as it helps
increase feedback and spark
conversations regarding the different
objectives and how they can be reached.
This is why collaboration in budgeting is
paramount - team members gain a better
understanding of the business priorities
when they know the budget and
contribute to it.
Financial health
Without having a budget that details your
goals, objectives, and how you plan on
reaching them, you won't be able to
monitor the financial health of your
business. As without planned goals and
milestones, you can't determine whether
your business performance is sufficient
and sustainable or not. Accordingly,
preparing and following a budget often
results in better financial discipline as
companies and their employees take
more considerate decisions.
04
Planning
A business budget is one of the main
tools for planning. It helps you define
clear goals, allowing the company to
prioritize and focus on what's needed
to achieve these goals. Then,
determining and allocating the
necessary resources to reach those
goals.
Accountability
Having your team or different teams and
departments define their goals and
budgets increases their accountability
and commitment for reaching these
goals. It helps you track the business and
individual teams' performances by
comparing your estimated goals to your
results (budget vs. actuals). Optimizing
your actuals vs. budget could also be
used as an incentive for employees to
limit expenses and increase profitability
as well as employee productivity.
But where does one begin when it
comes to the budgeting process and
preparing for the budgeting season?
 05

HOW TO PREPARE FOR

BUDGETING SEASON?
There are many ways to approach budgeting. However, most fall under two main categories;
top-down or bottom-up budgeting.

Top-Down Budgeting Bottom-Up Budgeting

Management Management

Budget Input Budget

Teams Teams

With this approach, goals, and budgets are set
by the leadership team for the entire
business. Based on the company goals and
objectives, resources are allocated
accordingly to each department and team for
the upcoming year. Usually, the management
will use previous data such as the previous
year's budget and performance metrics to
create the new budget. Typically, after the
goals are defined by the company's
leadership, the departments and team need
to figure out how to reach them.
In contrast, a bottom-up budgeting approach
starts at the department, or rather team-level,
and you make your way up the ranks. Thus, the
budget keeps on accumulating, which is then
presented to the company's management and
consolidated to form the company budget.
Often, bottom-up budgeting goes hand-in-
hand with driver-based budgeting. Here,
instead of defining revenues and costs top-
down (e.g., 10% revenue growth), the core
drivers of a business are planned, and the
company's revenues and costs are a direct
result of that.

Preparing for the budgeting season, we set broad top-down

goals as a leadership team. We take existing budgets from the
H2 forecast (vs. actual), and with that, we distribute templates
for budget input worksheets to each department lead.

— Noah Barr
CFO at TrueAccord
 06

The objective of both methods is the same, but they

approach the budgeting process differently. Top-down
budgeting has its advantages being a faster approach as
it focuses on creating a company-wide budget by the
leadership team as opposed to separate department Starting with last year's
budgets that are then combined. The budget can also be forecast and current
easily aligned as it is set by senior management who are
year-to-date (YTD)
aligned with the company goals and objectives and
assessing decisions that can further it as a whole.
performance as a
baseline, we typically
However, bottom-up budgeting is the more granular push out department
(see driver-based planning) and thus the more accurate budgets and actuals to
approach. Individual departments and teams generally
department leads. At the
have a more in-depth understanding of their needs,
expenses, and the resources required to achieve their same time, we work with
objectives which improves the accuracy of the the CEO and executives
projections. It also increases ownership and to set high-level strategic
accountability for the team as they set their own
objectives that will help
budgets and goals, motivating them to reach those
goals.
inform revenue forecasts
as well as
The best budgets are driven by the finance team with investment/burn targets.
deep interactions with and a lot of involvement from
other team members and various parts of the
organization. CFOs gather data from different sources
throughout the throughout the company and
— Matt Gallatin
consolidate it into a single source of truth. That way, they
CFO at StackOverflow
can leverage collaboration to create an accurate budget
and eliminate data silos in the process.

Once you've defined your approach, let's discuss how you can prepare for the annual budgeting
season to ensure a structured and productive budgeting process.

1. Be clear about the company goals

In order to be prepared to build a solid budget, it is crucial to understand the company's goals and
priorities. Do you want to grow your top-line to become market leader, or do you need to restructure
the business to survive?

Such goals and priorities dictate a company's budget, which translates them into financial and
operational goals. Make sure everybody involved in the budgeting process fully understands the
company's vision and objectives. This way, you ensure that everyone knows what's expected from
them, and they'll become more involved and equipped to contribute high-quality input.

To prepare for the budgeting season, first, I start with

what we're trying to solve in terms of business goals
and investor expectations. Then, work backward
leveraging competitive benchmarks of cost
categories by type as a percentage of the revenue.
— Quincy Yang
CFO at Coffee Meets Bagel

2. Understand the
business
Before you start creating your budget, you
need to make sure that you fully grasp how
your business works. This goes beyond a
high-level understanding of how the
company operates and makes money.
You should be able to answer questions like:
How many new orders will we have if we
increase our marketing spend by 10%?
What share of new users do we expect to
churn after 3, 6, or 12 months?
How will additional customer support
employees contribute to customer
retention?
How will the number of
customers/users/sales change if we
change our pricing structure?
How will our HR costs change if we adjust
the variable component of the
compensation for our sales team?
Of course, these questions may vary
depending on your business model and
industry. But being able to answer questions
on this level of detail ensures that you
understand the drivers and
interdependencies of your company. You can
then translate that into a financial model and
know whom to involve in the budgeting
process.
3. Involve stakeholders
While it is crucial that you understand where
the company is headed (its goals and
priorities) and how the business works (its
drivers and interdependencies), relevant
information and know-how will likely be
scattered across the organization.
For example, the Marketing department will
be best equipped to estimate the impact of a
particular marketing campaign on new
customers or users and the HR department
should be able to give you a solid indication of
the recruiting costs expected for the
upcoming period.
07
There are several additional advantages to
having an inclusive company budgeting
process:
Information transfer: Sharing information
about the budget is critical for department-
level management. Teams or employees
involved get to discuss budget preparation,
challenges, different points of view, and
figure out different ways of solving
problems. This often also results in better
alignment on the company's goals and
priorities.
Employee motivation: When employees
participate in the budgeting process, it
provides them with a sense of participation
and ownership through opinions valued by
the upper management. This involvement
improves their morale, encouraging them to
work harder and attain goals together as
one.
Goal conformity: Team involvement means
setting joint goals that move the company
in the right direction. Without conformity,
it's impossible to achieve the
predetermined company budget goals.
To prepare an accurate budget, it is imperative
to involve the relevant stakeholders in the
budgeting process and make use of the
decentralized know-how in the organization.
They also need to have tools and processes
that allow them to easily pitch in and exchange
data without any disruptions to the process.
Will Stewart, Corporate Controller at
SonarSource, stressed the need for
collaboration and delegation across different
members and departments during the planning
process. He put it simply in three steps
"Request inputs from other departments,
create models based on our legal entity
organization, and consolidate the data."
 08

4. Define the output

There are many types of budgets. A budget can be anything from a rough estimation of costs and
profits to full-fledged financial statements. Depending on the stage, size, and nature of your business
and the available resources, you need to decide what you want to accomplish with your budget and
what type of output is necessary for that.

The most common approach is to budget on a Profit and Loss (P&L) basis, enriched with operational
metrics (e.g., the number of sales and users). Such a format typically contains the most relevant line
items for monitoring and steering the business. These line items show revenues and expenses owned
or managed by different departments which is why it’s vital for teams to be able to contribute to the
budget.

While the P&L statement is the most common format for a budget, it may not be sufficient.
Investments (capital expenditures), incoming payments, and outgoing payments cannot be inferred
from a P&L statement. And depending on a company's funding, it is imperative to understand your
cash flows to ensure you won't run out of cash. This is where a Cash Flow statement helps.

Apart from the type or form of your budget,
you also need to decide on the level of
granularity, both regarding the time aspect
and the line items included:
Should your budget have a quarterly or
monthly breakdown?
Is one line item for marketing spend
sufficient, or do you need a breakdown by
marketing channel?
Can overhead costs be consolidated into a
single line item, or do you need
transparency on its components (e.g., rent,
legal fees, accounting costs, etc.)?
More details in your budget typically require more
effort in its preparation and also maintenance.
Accordingly, you should be wise about what to
include and what can be left out and ask yourself
whether the additional information or accuracy
justifies the required effort:
Does breaking down an item provide valuable
insights for decision-making?
Can the broken-down items be forecasted
accurately?
What is the labor cost invested in breaking
down the budget, and is it valuable or a waste
of time and resources?

As a general rule of thumb, you want to

include as little detail as possible but as much
as necessary for alignment, monitoring, and A good financial model has key drivers
steering. and assumptions and is highly predictive;
no more, no less.
No matter which format you pick, your budget
should always give you a reliable picture of the
financial health of your business.
— Casey Woo
CFO at Landing
5. Plan ahead

Budgeting takes time and usually requires a few iterations. Depending on the size of your business
and your goals, budgeting can take anywhere from a few days to several months.

This is why it's suggested that companies approach their budgeting process with sufficient lead time.
Martin Betzwieser, CFO at ottonova, does exactly that, saying, "Already during the year, we collect
commercial insights and questions for the next budget round. Once we are running into late summer,
we define the key drivers and adjust the previous planning model accordingly."
 09

That way, no matter the size of your organization, you have enough time to prepare a comprehensive
budget, iterate and revise. The time needed for this is often underestimated. Plan accordingly and
remember that aligning between one department's budget and the company's overall goals or
synchronizing assumptions across departments can be very time-consuming.

You should also remember that budgeting is an ongoing

Starting around the
end of Q3, we do lots
of top-down planning
and modeling. Then, it
gets discussed with
the team managers
when they prepare
their Q4 budgets
— Benjamin Myers
CFO at CyberLabs
exercise. Budgets should be updated regularly and
monitored throughout the year to adapt to the changing
needs of the business. So it is pivotal that you implement
the tools and workflows needed to facilitate the process of
having multiple teams constantly updating your budget.
Oliver Cen, Director of Controlling and Accounting at Mister
Spex, said that "Ideally, budgeting is a continuous process
with little special efforts," making it smoother and more
efficient instead of cramming it all into a couple of months.
While static budgets act as a guideline (and serve as a basis
for your budget vs. actual comparison), dynamic budgets
adjust to the changes in a changing environment and serve
as an ongoing forecasting tool.

Which budgeting software should I use?

Using the appropriate software or a well-rounded stack of tools can lead to a more effective
budgeting process. There are many different tools and solutions used for budgeting. These tools fall
under three main categories:

ERP tools
Enterprise Resource Planning (ERP) tools are used to manage ongoing business activities and
processes, including accounting and budgeting. They combine data and metrics from different
sources such as finance, sales, operations, and marketing. ERP solutions are costly to implement and,
therefore, can mostly be found in large organizations.

Budgeting and Planning tools

While ERP solutions support a range of essential processes, budgeting and planning tools are point
solutions. They are mainly focused on managing, controlling, and automating the budgeting process.
However, planning tools can be rigid and lack the flexibility needed for company-specific
requirements.

Spreadsheets
Spreadsheets are the go-to tool when it comes to budgeting. There's a reason why more than 80% of
companies use spreadsheets for budgeting; they are the most flexible and cost-effective solution and
allow you to easily plan the business finances months and years in advance. However, spreadsheets
still come with their own set of limitations, especially when it comes to collaboration. Users struggle
when collaborating on spreadsheets, and models can break easily.

None of the three is superior to the other. Each has its benefits and limitations, and picking one that
suits you best depends entirely on your business needs and the type of output you expect from the
tool. In fact, many finance managers use not one but multiple different tools for their budgeting
process and leverage complementary solutions to cater to their specific needs.
 10

When asking multiple CFOs about how they prepare for the budgeting season, most responses
focused on the tools used during the budgeting process, showcasing the importance of selecting and
using the right ones.

In addition, most use complementary tools, including collaboration tools like Google Sheets and Layer,
project management tools like Notion, financial planning and analysis (FP&A) solutions like DataRails
and OnPlan, or a combination of those.

"Microsoft Excel, Google Sheets, and Layer" "Excel"

- Elliot Comite, Head of Finance at Ironclad - Martin Betzwieser, CFO at ottonova

"Excel" "Excel and Google Sheets"

- Julia Jansen, VP Finance at Comtravo GmbH - Benjamin Myers, CFO at CyberLabs

"Mostly Excel" "Google Sheets"

- Oliver Cen, Director of Controlling and - Will Stewart, Corporate Controller at
Accounting at Mister Spex SonarSource

"Google Sheets fed by Netsuite and Looker

"Excel, Google Sheets, and forecasting tools
supported by a very detailed project plan in
like OnPlan"
Notion"
- Quincy Yang, CFO at Coffee Meets Bagel
- Sebastian Rave, VP Finance at Taxfix

"Excel for model building and Salesforce, Netsuite,

and other ERP tools to source data and inputs."
- Matt Gallatin, CFO at StackOverflow

How can Layer help you?

Layer is a spreadsheet platform that works on top of Excel and Google Sheets. It allows you to easily
manage and automate spreadsheet workflows. With Layer, you can:

Upload or connect your existing Excel

or Google Sheets-based budget.
Share different sheets or even cell
ranges of your spreadsheet with
various stakeholders or departments
involved in the budgeting process.
Automate your communication flows
and keep track of your data
submissions, contributors, and
deadlines.
Review every single change made
and decide which ones to merge with
your spreadsheet or discard.
Eliminate errors in your budget or
manually copying and pasting data
across files.

Sign up at www.golayer.io and

schedule an onboarding call to
get started with Layer right now!
Sign up and get started today!
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blog.golayer.io