In honor of FY24, here’s a brain dump of 24 deadly mistakes first-time (and to be honest, also very senior) FP&A professionals make when preparing their annual operating plans.
Use this as a final gut check before you start the new year.
Not allocating stuff early enough
Makes future periods hard to compare, and makes your G&A look bloated early on. It’s common to overload G&A with rent and subscriptions for longer than you should because it’s the easy thing to do.
Building long term models that are not based on bottoms up assumptions
You can't just straight line opex growth - the company will change its mix of employees by department over time.
Allowing the CEO's direct reports too much autonomy to negotiate vendor purchases
Your head of engineering knows Kotlin. He does not know how to negotiate multi year contracts based on payment terms.
Chriss Voss: Probably doesn’t know Kotlin, but will negotiate your ass off.
Hiring analysts who have strong accounting backgrounds but can’t do financial modeling
OMG you don’t know what a Vlookup is, do you? Take a lap. And then don’t come back.
Avg salary per person creep
Not testing it on a quarterly basis. Can get out of whack fast when you are at the scale and now need to bring in managers to sit between the C-suite and employees. That middle management layer is expensive as hell.
Making two for one swaps internationally for lower cost employees
It never actually works out to a fair trade after you factor in benefits and the admin cost of adding another node to the org.
Not budgeting for laptop refreshes for existing employees
If you actually remember this, you are a far better planner than I, a man who has forgot this seven years in a row.
Refresh.
Not forcing travel to follow the individual back to their department
Put the budget there so you don’t have to charge other cost centers (like marketing for conferences). When travel goes over budget (and it will), failing to do this will lead to finger pointing.
Not benchmarking your effective commission rate early on, and letting it creep up with sales hiring
Effective commission rates will grow by at least 5 percentage points during one year of hyper growth. And then one morning you wake up and realize you are paying two managers, an SE and a BDR on every deal.
Buying FP&A software licenses for people in non finance departments
They will never open your slick finance app. I’m 0 for 4 on getting my VP of People to use a cloud based planning platform. Also, if you are an FP&A tool, you should sponsor this newsletter and I’ll take back what I said.
Blindly relying on salary data from the people team
It's always more expensive to hire people than what Pave or Mercer tells you. Do a gut check based on what you are seeing from the economy, and then add 3% to the plan.
Not opening enough BDR roles and promoting them all to AEs
Congrats, you now have no one to hand leads to your new AEs!
Using deductions to commission attainment goals rather than multipliers
Deductions are mathematically right but motivationally wrong.
Not breaking travel into internal vs external buckets
The internal travel will get away from you but you won’t have a budget to correct people.
When they hire me to speak at SaaStr next year (holla at ya boi)
Under estimating the benefits uplift by country
Europe is more expensive than you think. Plus, they barely work (kidding - just testing if my finance friends in France are reading).
Over indexing on marketing program spend without enough people to spend it.
Early on the marketing team’s eyes are bigger than their stomachs, and they want to go out and spend. But there actually aren’t enough people hired and ramped to deploy spend.
Not forecasting marketing pipeline by both segment and by source
A lot of companies do one but forget to do both. The split of pipeline coming from online advertising vs conferences will be different for enterprise vs smb and the customer acquisition cost will be different as well.
Under budgeting on commission for sales overlays
Don’t forget product specialists or channel reps. As annoying as they are, they need to get paid too.
Thinking you can align hosting spend to revenue growth.
It never works this nicely. Correlation does not mean causation here.
Allowing people to over hire contractors instead of taking on full time employees
This is usually a false hope; plus, they are often harder than you think to unwind.
Over-indexing on one lead source within your marketing budget.
Not all sources are equal, but not all sources are endless. You can only ride PQLs so hard.
Forgetting to add placeholders for lawyers going into an anticipated fundraising year
This will be minimally a cool $100K to $150K. But it may not matter because you’ll be swimming in new cash anywho.
Budgeting headcount by quarter, but not by month
Every leader will come to you asking for their headcount in the first month of each quarter, which will frontload your costs more than you anticipated.
Not reading Mostly Metrics
Share this in your finance team’s slack channel. I dare you.Share
