The “Art” of Annual Planning

For the numbers-obsessed CFO, the “art” of annual financial planning can sometimes feel uncomfortable and daunting. Throughout the planning process, a CFO often takes on the role of facilitator, mediator, and liaison to the CEO and board, all while managing a delicate planning framework and coordinated process. 

We convened The Circle community to unpack some best practices on this topic in a follow-up to a conversation on the “science” of annual planning. The discussion was led by three seasoned finance executives – Doug Ireland (x-Coalition), Lee Kirkpatrick (x-Twilio, board member + advisor), and Dave Faugno (Qualtrics, board member + advisor) – and executive coach Geoff Graber of Evolution.

The 3 C’s of the CFO’s Planning Role

Thinking beyond deliverables, milestones, and the annual planning project scope, our experts offered three critical responsibilities the CFO must assume throughout the annual planning process:

1. Context – While every leader is focused on their functional area, the CFO has to contextualize what is happening across the organization, including at the board, executive, and employee levels. Doug used the analogy of the CEO being the one behind the wheel while the CFO has the map guiding them in the right direction. Context also extends to the broader economic climate. “The CFO has to constantly be thinking about what the company does well and how they help their customers and how that, in turn, creates economic value,” Lee said.
2. Connectivity – The CFO must ensure that the financial plan connects the company’s short- and long-term priorities. “It’s not just about where the company is today, but also what’s the right path for the future,” said David. To support this effort, the CFO has to be looking at the key metrics that signal durable growth for the company and can therefore be used to guide short-term budget decisions. A heightened level of scrutiny becomes more important in times of economic uncertainty when cash management is critical for survival and growth. In addition, the CFO should act as a unifying “hub” connecting different “spokes” of the organization to gain alignment on top priorities. 
3. Control – Rather than trying to formulate the “perfect” plan, the CFO has to maintain perspective on what they can and cannot control. While a concrete and defensible plan is always the goal, recognizing the level to which things are beyond control can liberate a CFO to focus more on the “art” of fostering collaboration and alignment across the executive suite while also developing their leadership skills.

Establishing Guardrails With Leadership, the CEO, and Board

As we learned in the “Science” portion of this series, it’s critical to get early leadership alignment on the budget targets and major company initiatives. But CFOs may encounter pushback or out-of-scope budget requests from leaders after they go back and more closely review their department needs. When this happens, it’s essential for the CFO to maintain firm guardrails:

“You have to be explicit about reminding everyone what is and is not a priority and where the team should spend their time. That clear top-down view on the most important short- and long-term initiatives and the metrics that support them becomes an important guardrail guiding the rest of the organization on where they should help fill in the blanks.” – David Faugno (EVP and former CFO of Qualtrics)

Guardrails should also extend to the CEO. In some situations, there may be pressure from an overzealous CEO to micro-manage the planning process. To avoid this, CFOs must establish clear roles and responsibilities for themselves, the CEO, and the rest of the leadership team prior to kicking off the planning process. This is important for maximizing planning efficiency and shoring up the CFO’s role as a leader in the organization.

“It’s important to have self-confidence about your role, how you work, and how you see yourself. It can be a challenge, but having that conversation with the CEO and other executives about what your role is and where your boundaries are can prevent you from being pushed over, and ultimately builds trust in your leadership.” – Geoff Graber (Co-founder and Executive Coach at Evolution

Of course, sometimes a CEO might insist on staying closer to the numbers, putting them in a position to more directly influence the final budget and headcount. To avoid conflict, CFOs can schedule more regular touchpoints with the CEO throughout the planning process in order to align on key assumptions in the model or review some back-of-the-envelope numbers. They may also want to involve department heads in conversations about headcount to provide first-hand justification, said Doug. However, it’s important that the CFO always maintain control of the planning process and the final budget proposal.

Similarly, the board of directors can disrupt the planning process if they try to influence the financial strategy too early. Board members may have different agendas or assumptions about what growth might look like during economic uncertainty; therefore CFOs should stay confident in their strategy while also demonstrating to the board that they’ve considered a slew of variables in forming their position. Conveying this confidence through ongoing dialogue with the board can put members at ease and ultimately lead to stronger board relationships.

Build Cross-Functional Relationships Early, Invest in Them Often

Critical to the success of your annual planning is having solid relationships with each functional leader, and our experts agreed that this exercise should start well before the actual planning kicks off.

“Relationship building starts when you get into a cadence of several months or quarters of visibility and accountability. Sitting down with each leader regularly to review how they’re doing in terms of what they’re spending versus what they’re delivering and how that aligns to expectations – all of that just makes the annual planning process a lot smoother.” – Doug Ireland (former finance leader and CFO of Coalition and Tapingo)

Investing in relationship-building with peers early and often also becomes an opportunity to reposition the Finance team as not just an “enforcer” but also an “enabler.” “Once you build empathy for the challenges your fellow leaders are facing, you start to learn what you can be doing to help them and become an enabler for helping them achieve their goals,” said Dave.

In B2B companies, staying particularly close to Sales and Product can build strong cross-functional relationships and give the CFO better insights into the needs of the business, said Lee.

“One of the best ways to build relationships is to make sure you and your team are spending time with customers. Ask your sales team to bring you on a sales call; it’ll give you the benefit of understanding your customers but also build relationships with key leaders in sales and product.” – Lee Kirkpatrick (board advisor and former CFO of Twilio 

Final Thoughts

Annual planning is both an art and a science that allows the CFO to hone their leadership skills and create a roadmap for the company’s future growth. Understanding their role, what is within their control, and being firm about guardrails can drive more productive planning conversations while year-round relationship building and influence create better planning outcomes.

Explore our Annual Planning Compilation to discover more community-driven insights and resources on annual financial planning.

If you’re interested in participating in conversations like this one with other growth-stage private company leaders, apply to join The Circle.