Within our portfolio’s cohort of SaaS CEOs, budgeting consistently ranks among the most challenging aspects of their jobs. This led to a recent post on this blog which argued in favor of now as a good time of year for SaaS businesses to examine previously un-budgeted expense items. That prior piece prompted a broader review of general budgeting processes, and provided a reminder of another simple but effective tip to help make budgeting less painful for SaaS CEOs.

First, let’s take a minute to recap why budgets are important for small-scale SaaS businesses, even those that are bootstrapped or that operate without a formalized board of directors. Most importantly, budgets serve as sense-makers for businesses. They quantify in specific terms whatever qualitative plans exist for the business. We generally codify initiatives and objectives in an annual Strategic Operating Plan, but these artifacts go by many names and can range widely in form. In whatever form your plan exists, a budget double-checks whether that plan is feasible and properly funded. It also helps enforce alignment of resources across the team and around that plan. Finally, budgets help businesses translate their inevitable idiosyncrasies into a set of universally understood measures (e.g., revenue, expenses, Rule of 40, etc.). In short: budgets = good. The problem is that budgets can be excruciatingly difficult to nail down, particularly for CEOs who may not have deep financial training (which, in the world of small-scale SaaS, is more the rule than the exception). For those typical CEOs, a persona-based approach to budgeting can help.

Wait…personas?! Aren’t those what our Marketing team uses to identify ideal customer profiles? Well…yes…but they can also help crystallize roles relating to the budget process. Specifically, no matter the composition of your team, someone will need to fill the following roles / personas in the budgeting process:

1. The Leader: This person is running point on the entire budgeting process, making sure that the right people are involved in the right ways at the right times. Although this has some tactical project management aspects to it, the CEO is best situated in small-scale SaaS organizations to serve in this role as the budgeting Leader. This is also the person who ultimately has last say on the numbers.

2. The Sensei: This person is a step removed from the budgeting activities and can provide a broader perspective about both the budget process and the actual work product. This person should offer a top-down view on what “Good” looks like — both in terms of the budget output itself, as well as how a given year’s budget supports the multi-year narrative of a company’s financial story. The Sensei is often a board member(s), but it doesn’t need to be. In particularly small SaaS businesses, this might reasonably be an outside advisor, accountant, or consultant.

3. The Model Master: This person is responsible for building, maintaining, and ensuring the accuracy of financial spreadsheet model that usually serves as the backbone of a budget. This person “owns” the (typically) Excel files and builds bottoms-up revenue and expense models. This often takes the form of a “three statement model” which adds a balance sheet and cash-flow statement to the omnipresent profit & loss statement. This Model Master is usually someone in a Finance role, but it can also be an outsourced expert who assists smaller businesses.

4. The Historian: This person has valuable institutional memory. The Historian provides context and empirical data from the past to inform future-looking forecasts. This is a lot more about subtle nuances in the business (e.g., sector seasonality, observed customer payment trends over time, sales cycle statistics) than it is about the headline numbers of a budget. This person is rarely the loudest voice at the table; but their voice is one that should be carefully considered.

5. The Water Carrier: This person is responsible for making material parts of the budget come to fruition. The Water Carrier is also the person / people who carry the quota that will turn the plan into reality (usually in the form of sales and (eventually) revenue). Unsurprisingly, the Water Carriers inject a dose of reality to budgets, particularly when The Leader and the Sensei get overly optimistic / ambitious. This person is usually the head(s) of Sales and Marketing, but can vary across different roles depending on the business model. Unlike other personas mentioned above, this person is almost never a consultant or part-time team-member.

We’ve observed that each one of these personas plays a critical role in successful budgeting processes. If even one of them is missing, it can throw-off the process and drive imbalances and gaps. Importantly, this does NOT mean that there needs to be exactly one person for each of these personas. In smaller companies one person may end up filling two or more of the roles outlined above. For instance, the CEO is often not only the Leader, but also the Historian. This tends to work just fine. The only thing to really avoid is violating the so-called Ghostbuster Rule (“…Don’t cross the streams!!”). Specifically, it’s quite problematic to have one role “moonlight” into someone else’s domain. The prototypical example is the CEO who decides that they want to suddenly dip into and out of the model when the mood strikes them. Don’t do that…it would be bad.

The Ghostbuster Rule

I’ll close with one last framework that can be quite valuable in the budgeting process: RACI chart (R = Responsible / A = Accountable / C = Consulted / I = Informed) can be great for clarifying which position in the org is responsible for what. Hopefully the example below is self-explanatory.

Sample RACI Chart for Budgeting Process

As valuable as the RACI is, though, we’ve observed that its utility is limited unless specific conditions are met. Rather, we find that it’s important to nail the personas above, before a RACI makes much sense to anyone.

In sum, personas aren’t just for Marketing anymore…they can definitely help make budgeting less challenging for all.

Budgets Again // aka: Personas — Not Just for Marketing Anymore was originally published in Made Not Found on Medium, where people are continuing the conversation by highlighting and responding to this story.

Like pre-Christmas sale commercials, blog posts about budgeting generally peak sometime in December — near the end of one fiscal year and before the beginning of the next. So why share a budgeting-related post toward the end of Q1? Because this is the time when many operators look at their budget and realize…something is off. I’m not talking about the top-line; hopefully bookings performance for most businesses is still tracking to plan. Rather, I am referring to expenses. What we’ve observed over time and across many companies is that some expense items commonly get overlooked in the (normally) Q4 budget planning process. And, like the green shoots of weeds in our yards, now is the season when those unwelcome cost items begin to first reveal themselves. But it’s still early enough in the year that those expenses can be identified, quantified, forecast, and proactively managed throughout the remainder of the fiscal calendar. This post calls out commonly missed expense items that might just warrant leaders’ attention and allocation within SaaS budgets:

1) Financial Audits: Not every private company invests in audited financial statements. But I’d argue that they should. And any business that has taken on institutional capital will undoubtedly be required to do so. These audits aren’t cheap (they generally run $20K — $40K), which is a big, unexpected pill to swallow for small-scale SaaS businesses. If a business has debt on its balance sheet, there will inevitably be additional audit activities (and more associated costs). Note: these and estimates throughout this post are for businesses in the $5M — $10M ARR range.

2) Performance Bonuses: This one shouldn’t be a surprise to anyone (it generally gets set at the outset of the prior year). Nevertheless, payment of bonuses often creates miscommunications and drives variances to budget. Perhaps it’s the timing complexity (“…remind me again, do year X bonuses get paid in year X, or in year X+1?!”). Whatever the case, now is a good time to think it through to avoid unpleasant surprises later.

3) User License / Vendor CPI Increases: This was less of an issue in prior years, but it’s a reality in the current high-interest rate / high inflationary environment. Particularly for companies that are expansive in their use of subscription-based solutions to power their enterprise, these increases can be substantial. As a rule, plan for 5% annual increases across the board…and then be pleasantly surprised when they’re less. Note: for volume-based contracts (e.g., Salesforce seats) it’s important to also update usage forecasts to ensure accuracy.

4) Legal Fees: They just…happen. Even in years that are relatively drama-free, legal fees just seem to have a way of finding us. And as the adage holds, “there are two types of lawyers: expensive ones…and REALLY expensive ones to fix the first group’s mistakes.” If possible, don’t skimp here. Make sure to set aside a healthy pool. Absent any other data, take a 3–5-year average of prior years’ fees…and gross it up per the CPI comment above.

5) Team Professional Development: Often the first line-item to get slashed in lean-times, this still has a way of adding up (e.g. a $500 / employee alloocation for a 30 person team = $15K). Please don’t kill this line-item entirely. If you want to lower the $ / Employee allocation…okay (but not great). But just be sure to keep this line-item realistic . SaaS leaders don’t expect team members to just stop investing in their learning in down-cycles…so, budgets shouldn’t pretend otherwise.

6) Tax Filings: Scrappy start-ups may be able to spend $0 to file their taxes, but it’s a dodgier proposition for growing SaaS businesses to do so. This one is close cousins to the point about financial audits above. And while it is generally much less expensive ($6K — 8K), it’s not $0.

7) Healthcare Increases: Ugh…don’t get me going on how the cost can continue to go up while the quality / coverage of the offering consistently declines. Whatever…just plan on a 5% — 8% increase annually.

8) Salary Increases: Okay, I’ll admit, this one rarely gets missed. Rather, business leaders generally have a great handle on it. But because most SaaS businesses’ biggest expenses are personnel-related, this one is super-material. And because retaining those people is so critical, it’s best for leaders not to hamstring themselves with an overly frugal assumption here. Although the “Great Resignation” thankfully seems to have abated, this is no place to low-ball.

There is a very long-tail of other line-items that could be included in this list. But hopefully the above capture the most material expenses that commonly get overlooked. And if this post helps SaaS operators avoid some unpleasant surprises as the year unfolds, then it will have been worth every penny readers paid for it. 😊

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