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Most CFOs I know didn't get into finance to chase receipts.
But that's where the time goes. Reviewing expenses that should have been blocked before they happened. Closing books that take longer to close than the month took to live. Approving spend that should have been approved automatically three days ago.
That's not a people problem. That's a systems problem.
That's why I use Brex. Agentic Finance that automates the receipts, catches out-of-policy spend before it hits the books, and closes your month in minutes instead of weeks. So your finance team stops spending on maintenance and starts spending on momentum.
35,000+ companies, including Mostly Metrics, Anthropic, DoorDash, and Coinbase, have already figured this out. See why it’s time to get Brex AF.
I’m In Overmyhead
I wanted to call this post “Over My Head” and post the Lit song, but I didn’t think it would have a high open rate.
Ah, screw it, play the song!
Amazing sideburn game, lead singer man!
Every company goes through a painful period where they start allocating overhead to departments. It confuses the hell out of the people running those departments, some of whom are still new to even having a budget, because suddenly they're getting charged for things they can't directly impact.
I was at a company around $500M in revenue when we started allocating rent down to each department leader. The CMO came back to me and said something along the lines of,
"Well, I didn't know the rent in Moscow was that much higher than Bucharest, maybe that should have factored into my hiring decision."
Which, obviously, it should not have. But this person still felt like they were being dinged for something outside of their control. (It didn't help they were 107% of spend that quarter, making them especially bitter.)
So, two questions. When do you start, and what do you touch first.
When Should You Allocate?
There are two schools of thought on this:
As soon as possible: You want to avoid comparability issues down the road. There’s nothing worse than having to restate 19 quarters of prior financials so there’s some semblance of a consistent story. If you don’t allocate now, you’re going to make the prior years the villian of your current years (“holy shit, your CAC payback period skyrocketed, huh? What happened there?”).
As late as possible: The juice ain’t worth the squeeze, my friend. You’ve got three people in finance (including accounting) and you barely have enough bandwidth to process invoices on time. Plus, your Head of Engineering wouldn’t know what to think about rent expenses if it hit him in the face. There are dumpster fires and there are waste basket fires, and this is the latter.
And then there’s my honest answer: When your investors make you.
This usually hits around Series B or C, when investors stop grading you on growth alone and start comparing your opex as a percentage of revenue against your peers. They’re benchmarking you against the other investments in their portfolio, and if your G&A line looks like you’re hiding acorns for winter, you’re setting yourself up for an explainer session that is guaranteed to make you look like you don’t have your shit together.
To make it more real, these are questions I’ve actually been on the receiving end of, and tipped me off that it was time to start allocating:
Why does your G&A department cost the same amount as Product? I thought you only had three people in finance, accounting, and HR.
Your gross margin looks amazing. Do you actually have all the appropriate hosting costs in there?
Damn, your S&M efficiency is great. Does that include all the tools they use?
And the dreaded one:
Does this P&L include stock based comp?
Answer: No, you dummy. We are 43 people.
To be fair, not allocating shouldn’t block a fundraise from getting done. They are either going to love your business or not, and it’s not going to be predicated on where rent expenses sit. But you should at least be able to swag it when asked.
And that’s the crux of the “when” - you can delay it as long as you can reasonably estimate it. So there is a difference between painfully performing the allocations by hand before you move from QuickBooks to NetSuite (as a single entity, single currency company), and knowing how to simply estimate it for a coherent story.
And before you can swag it, you need to know what's in the bucket.
What Should You Allocate
Allocating is not a binary exercise. You don’t have to go HAM and allocate everything including the office snacks all at once (although Odwalla juice costs are outstripping the CPI these days). Take a step back and think about how chunky the cost is, and how cleanly you can tie it to a department (e.g., does it move with headcount?). Small and messy can wait and stay in G&A.
Here’s my stack rank from sooner to later:
Travel
Follows the employee
The person who took the trip owns the cost; nobody should argue because receipts and shit
It’s worth splitting into internal travel vs external travel
Internal travel: All hands, Small hands, Hacker house (do they still do those?)
External travel: Sales generating activities
Some departmetns only ever have internal travel because no one on the eng team is flying to work the booth at Dreamforce or take a customer to Bar Louie for lunch martinis
Departmental Software
Who’s using it?
Salesforce goes to Sales and Marketing (split pro rata by headcount)
Github goes to engineering
Figma goes to product
Gong goes to Sales
This is another clean example of “allocate where the usage is”
Plus, the department head should own the budget and renewal conversation
If your CRO is signing off on a $400K salesforce renewal with four different clouds, they should also be the one explaining why it grew 30% y/y
Corporate software
Communication and productivity based stuff like Zoom, Slack, Google Workspace, Notion, 1Password
This is the stuff everyone uses
This should live in IT from a decision making and provisioning standpoint, but get allocated out by a headcount %
If marketing has 10% of company headcount, they should take 10% of the Zoom cost
TBH, this is the bucket that nobody outside of finance wants to be charged for, but it’s also the bucket that’s too large to keep parked in G&A
Rent
Allocate it by headcount %
If marketing has five people out of 100 in the Boston office, they get 5% of the rent cost
It’s the cleanest possible allocation and it gives you a big optics win on G&A
Caveat: Only worth doing once you have multiple offices
A sales outpost in Austin: Allocate
A $500 / month we work pass for two engineers to print shit in Portland: G&A. Don’t big brain it.
IT (people and tools)
Now we’re getting into some of the more nuanced debates
I try NOT to allocate the IT team’s costs until as late as possible because it just rubs departmental leaders the wrong way
They can easily see that their team uses Zoom. They can’t really see how their team impacts the company’s Crowdstrike cost
In my opinion, this is only worth doing if IT is big enough to matter.
If it’s two people running triage in a slack instance you already have, just park it in G&A
If it’s a team of 10 people and a CISO, you should consider pushing it out to the departments
Another way to look at it - if it exceeds 1% of revenue, you gotta do something about it
Cloud Hosting
OK, we are being serious people talking about serious stuff now
There are three buckets within this bucket (I’m running out of buckets)
Internal: Your engineers building the product
External: The one that needs to go in COGS, and creates the cognitive dissonance between your headline margin and your actual gross margin
Ideally you cut external by product line too. You may have a product line that’s contributing far less than you think (happened to me once (twice)!)
Admin: Keeping the corporate lights on, the back office stuff
AI Token Costs
The NEW cloud costs
Same three buckets
Internal: Your team using Claude to build and and sell faster
External: Tokens consumed in your actual product
Admin: Any agentic workflows running the backoffice
This line is going to get real chunky real fast
And the companies who don’t take the time to separate their AI costs risk demolishing their GM’s down the line
DevOps
Roughly 50% cost to serve and 50% R&D
it’s a judgement call
People can argue about the split, but 50/50 is defensible enough
Actually, screw it. Just park it all in R&D.
Recruiting
Direct recruiters who own a specific function
A dedicated sales recruiter
A dedicated engineering business partner
A third party fee to hire a new controller (use Mostly Talent!)
Generalist or HR led recruiting should stay in G&A.
Stock based comp
Follows the employee
This is the dreaded investor question I asked earlier
Once you put SBC where it belongs, your CAC payback period gets longer, and engineering looks more expensive (because that's where a lot of your option grants are going)
Even if you don’t “show” the math, you should “know” the math and be able to speak to it
Depreciation
Non cash expense
Allocate by headcount %
If you’re going to ding people for this, make sure you feel good about the budget
No one wants to be off because of D&A. That sucks. It’s literally the worst. They will hate you.
What about the CEO?
Their time spans every function And when you start to allocate peoples' time, that's when you run into arguments
Trying to split that time across departments will incite rebellious debates. Park them in exec/G&A and accept the optics hit.
The Budget Issue
OK, so we’ve identified what the possible buckets of costs are to allocate. But how the hell do you budget for this?
Because it’s one thing to smooth out the costs into departments after the historicals roll in. It’s an entirely different bag of burritos to hold people accountable for a number that includes those allocations. And you’ll look like a total dope if you start allocating costs and totally mess up the count (as they say in the wire).
There can also be unintended consequences. You started this to give your G&A some relief (since you get penalized for parking 20% of your costs there). But in the process you make other areas look worse.
CAC payback period goes up as you put the cost of sales tools and stock based comp in there
“It’s not worse, we are just counting things differently now”
Gross margin goes down as you start to rightfully put the true hosting costs associated with serving your customer as well as the tooling that CS uses to resolve issues
Engineering goes up due to expensive third party recruiting costs.
But let’s be real, no one ever gets penalized for overspending in R&D.
The best way to manage this is to only give managers a budget that they can directly spend / impact. You allocate for management reporting purposes, but structure your monthly check ins around the budget that is sans allocations.
There’s a difference between what you track and what you discuss.
Are you keeping two sets of books? Kind of. But if you have your ERP set up correctly, it can be done automatically. An FP&A Director friend of mine allocates four things.
Rent
Office Expenses
IT
Depreciation
He told me:
They all run on individual schedules in NS + Abacum. We show them as separate line items. But they are grouped into an overhead / allocation bucket.
Not a lot of conversation around these items with the business though
We really focus on what we deem “controllable” spend (e.g., HC, Contractors, T&E, marketing etc.”
And that’s honestly close to how it should be. And also when you should start - when you have:
The tooling
The people bandwidth
And the investor scrutiny
Not to mention - it’s also important to be able to report with and without allocations for potential acquirers when they come sniffing around. As much as your current investors made you put the allocations in, the next buyer is probably going to want to see them out (if they are a strategic with their own IT, Finance, Recruiting, and Zoom account.)
“synergies”
Resist the Urge
The temptation, once you’ve built an allocation methodology, is to push it as deep as you can. “WE ALLOCATE EVERY DOLLAR!”
Resist that. The marginal value of allocating the last 7% of costs is approx zero. The marginal value of being able to tell a CMO “this is what you own, this is what you don’t” is huge.
So use the stack ranking above when you do embark on your allocation side quest.
From another friend:
Capex is the one thing I try to keep at a high level.
They don’t need D&A walks.
Actually, nobody really needs (wants) that.
I don’t even want D&A walks.
Your Bucharest office allocation should live on the P&L, not rent free (pun intended) in your CMO’s head.
Mostly Talent
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Wishing you expenses you can cleanly allocate,
CJ
