Most CFOs think they own annual planning & budgets — but behave as if they don’t
How great leaders create value outside of their function
My specialty is helping startups navigate transformative change on the path from $10M to $100M in ARR. Over the course of this quarter, I’m exploring a question that’s been bugging me for years: Why aren’t we hiring leaders based on their ability to build teams of lieutenants?
This post is part of the cross-functional leadership series. I’m starting with CFOs and will be tackling CMOs, CTOs, and other roles over the upcoming weeks.
Previous posts in this series:
Upcoming posts:
Ask your Founder where they stand on financial engineering. If they wince — send them this
Why CFOs always have an opinion on go-to-market — are often right — but still can’t persuade CROs to listen
What successful Founders know about fundraising — but most CFOs struggle to understand
Why being a great CMO is the hardest job in the C-Suite
…and more
Today’s cover image is a picture of Switzerland — the (in)famously neutral country that CFOs love to bring up when they claim that finance is objective and doesn’t pick sides.
In my last post I argued that accounting is the only function the CFO owns end-to-end. But what about the annual planning process? the budget? quarterly forecast updates?
Most CFOs live in an echo-chamber: everything around them reinforces the default belief that they and they alone own the annual plan and the budget.
Here’s how:
Founders ask CFOs to run point on the planning process
Boards hold the CFO accountable for keeping everyone on budget
CROs need FP&A approval before they make major comp plan changes
CTOs work with the Finance team to figure out how to prioritize impact
When CMOs get into an argument about marketing vs. sales contribution — they go to the CFO for arbitration
etc. etc.
But does a startup CFO really own the annual plan?
More often than not, public company CFOs truly do own the annual plan: they lead the relevant section of the earnings call, they are accountable to hitting earnings per share, they make the final call on the revenue guidance, they sit on key committees that sign off on pricing, capital investments, and hiring plans.
But startup CFOs do none of the above. Instead…
The CEO or CRO set growth targets — and are challenged by the board on those.
Finance updates are buried in the last section or appendix of the board deck.
Sales or product make the call on pricing — sometimes the CFO gets to veto.
Headcount decisions are based on “tell me what you need” or “here’s the benchmark you should hit” and not a true thought partnership with the business.
While CFOs may believe they own the plan — unfortunately, most founders expect their CFO to be a glorified project manager who happens to know GAAP and Excel.
The reality of a startup CFO’s job when it comes to annual planning is simple:
Gather inputs
Add it all up
(optional) Apply a haircut and call it “Scenario B”
Tell everyone they are below the benchmark
Ask for updated inputs
Rinse and repeat until the board is satisfied
(optional) Resist the urge to say “I told you so”
What’s the CFO’s value add to this?
Find relevant benchmarks
Don’t make formula mistakes (harder than it sounds)
Translate cash (what everyone thinks about) to GAAP (which nobody cares about)
If you’re a founder and treat your CFO as a fancy calculator with GAAP reporting capabilities — you’re wasting $300-400K per year and millions in equity.
It doesn’t have to be this way!
CFOs can and should add strategic value — especially at a startup.
Here’s how you can start doing that:
[1] Ownership is not a zero-sum choice
The number one reason CFOs get fired is because they “don’t understand the business.” The best way to preempt that is by taking ownership of the revenue forecast.
That doesn’t mean not holding the CRO/CMO accountable to the result. It does mean signing off on the forecast after pressure testing not just the inputs but the implicit assumptions behind them.
In prior roles, the CRO and I ran process twice per quarter where we aligned on the forecast. While the CRO was the one who presented the number and made the final call for the 3-6 month result — finance took ownership of the 9-24 month projections.
[2] Your lieutenants are your superpower
In an earlier post I outlined how middle managers have pure upside and no real career risk when they go beyond their own job scope and take the time to partner with their peers in other functions.
Use that to your advantage! The way you influence the business result isn’t through formal sign offs on decisions, but by building a team that will lift everyone else up.
It’s nearly impossible to go deep on sales comp, build a driver-based bookings model, quantify the ROI of new product features, and have a great working relationship with the recruiting team all at the same time. Decide which of these are important to tackle first, map them to your own strengths, and hire lieutenants who you trust to partner with the business on the rest.
Your job as a CFO is to promote a culture of collaboration across teams, design processes that force it where it doesn’t happen naturally, and nip in the bud the elitism that, unfortunately, appears to be innate for many finance professionals.
[3] The CEO may be your boss, but the Board is your client
The CFO is the only role in the C-Suite that virtually always has their own independent relationship with the board.
It's easy for CFOs to forget that, at the end of the day, report to the CEO. No matter how good the CFO-Board relationship gets, nothing turns board members off as quickly as seeing a CFO undermining their CEO.
But that doesn't mean the relationship you build with the board doesn't matter.
If the founder is treating their finance team as glorified project managers with GAAP & Excel skills, the path to changing that is through the board. Build trust the board members so they help the founder recognize the strategic value a finance team can bring. You want your board members to be saying this to the founder:
“I'd like to have the CFO validate and present this plan” — for a board member to say this you need to first learn to speak in business terms and not finance terms.
“Let me follow up with the CFO to understand what it takes to make this happen” — to win this level of trust you need your peers, from time to time, to defer to your cross-functional insights in board meetings.
“Your FP&A team is the best way for you (the founder) to get leverage as the company scales” — this is only true if you run a strategic initiative based and not an input/output style annual planning process.
Founders will follow the board’s lead in how they treat the CFO. The board will adjust based on the CFO’s ability to demonstrate knowledge of the business.
If this article resonated you may be interested in the following:
I’m developing a mini-course and a diagnostic to up-level the CRO — CFO partnership and drive outsize impact for the company through that. I’d love your input on the MVP.
My one-on-one coaching for middle managers is designed for high-performers looking to remove their ceiling. Consider sponsoring it for your lieutenants.
If you’re unhappy with your current CFO but can’t put projects on hold until you hire a new one — my fractional offering may be the right fit to close the gap.