As each new year approaches, we get calls from early-stage growth companies asking for help with financial strategy, particularly the annual plan. It is a pattern we have seen time and time again. It’s like purchasing a gym membership as a New Year’s resolution to get in shape; in this case, founders make their New Year’s resolution to get into “financial shape.”

How best to do that? To find out, let’s explore the three Ps of financial strategy: Purpose, Participation, and Process. 

Purpose: Going Beyond Compulsory End-of-Year Budgeting

End-of-year budgeting and planning are often treated as a compulsory exercise where the plan feels more like an extrapolation from the prior year rather than connected to the key strategies, priorities, and focus areas of the business. 

We talk to many leadership teams who have a hard time seeing the value in creating a plan since so much changes throughout the year, making financial plans or budgets seem inaccurate over time. That is why it is critical to focus on the purpose rather than the accuracy of the budget. 

The purpose of the budget may be:

• Alignment: Does the leadership team all agree on the annual plan and budget? Does everyone understand its components? Do the annual plan and budget help articulate the strategy, numerically? 
• Incentives: Does the plan create an incentive for the team around goal achievement? Do compensation structures in the plan reflect company goals? Do associated expenses need to be added to the budget and forecast?
• Ability to Execute: Can the budget serve as a historical artifact of the company and the leadership team on its ability to execute? Imagine being able to show an investor or buyer that you execute your plans to a high degree. That speaks volumes about the leadership team.

By asking the right questions and treating year-end budgeting as a learning opportunity, you can set the tone for lasting, purposeful financial planning year over year.

Participation: A Participation-of-Many-Voices Approach

Broad participation from the organization, with buy-in from leaders across the company who know their voices were heard in the process, is paramount in creating a targeted annual plan. Plus, having broader participation elicits broader ideation around how to accomplish specific goals and objectives of the organization, resulting in a more thoughtful and comprehensive annual plan and budget.

To that end, budgeting needs to be both top-down and bottom-up. For example, if the plan is to grow by $5 million in revenue, ask yourself:

• What kind of infrastructure do we need to support that growth?
• Do we need to hire twenty more people?
• Is our HR team equipped to manage that level of growth?
• How will this impact other departments like sales, marketing, or HR?
• What key projects and initiatives need to be in the plan?
• What Key Performance Indicators (KPIs) can we attribute to each area of this plan?

The big question at the end of this strategic planning session is this: What is the cost of each of these areas, and how best do we build a balanced strategic financial plan to fit what is needed to achieve our goals and KPIs?

Process: The “W” Approach to Strategic Planning

A solid financial process leverages both top-down and bottom-up insights and requires early, thoughtful preparation. For early-stage growth companies, three weeks of planning might suffice. However, more complex organizations should ideally begin this process in November at the latest.

The key is to avoid moving the goalposts once the year starts. Sales and marketing teams, in particular, want clarity on their targets and timelines as soon as the new year begins. A good CFO can help construct a clear process with appropriate timelines and milestones.

We refer to this approach as the “W Process.” Here is how it works:

• Top-Down Priorities: The CEO/CFO sets overarching strategic priorities and high-level targets.
• Departmental Input: Department heads develop their own budgets based on these priorities and targets.
• Back Up to the CEO/CFO: The CFO aggregates departmental budgets, reviews, and asks, “Does this all add up and achieve our targets?” Often, after the first round, the numbers do not add up. This is where the second half of the “W process” begins. 
• Adjust and Reaggregate: The CFO works with departments to adjust either the numbers or the goals, sometimes cutting spending by a certain percentage or asking teams to be more creative in budgeting.
• The CEO/CFO sends the message back down to the department heads to close gaps and make updates. 
• The revised budgets are aggregated once again to hopefully achieve high-level targets. In complex organizations, this might take an additional round of edits and revisions.

By involving all departments early and often in strategic financial planning–co-creating not just dollars and cents but also strategic actions and accountability drivers–owners and executives can solidify an achievable financial plan for the year.

At the heart of successful financial planning lies a commitment to clarity and collaboration. Financial strategy is not just a snapshot of numbers. Rather, it reflects your company’s capacity to grow, evolve, and sustain itself over the long term. Use the three Ps to fully articulate the “why” and “how” behind the numbers and create a map for future success.

AVL Growth Partners is a fractional finance, accounting and human resources services company supporting early-stage growth companies in pivoting to the next level of growth. We serve clients across the U.S. with offices in Denver, Austin, and Atlanta. For details, visit avlgrowth.com or connect with us at hello@avlgrowth.com.