Your Definitive Guide to Annual Planning: Where Do I Start?

👋 Hi, it’s CJ Gustafson and welcome to Mostly Metrics, my weekly newsletter where I unpack how the world’s best CFOs and business experts use metrics to make better decisions.

Here’s what we’ll cover for paid readers this month:

This series will come with planning templates you can use to build your own budget.

So grab your Zyn and let’s begin.

A GOOD operating model starts in month one and ends in month twelve.

A GREAT operating model never really ends - it just flows from the close of one period to the next, regardless of quarter or year ends.

Ideally you start this season working off the latest and greatest forecast you’re currently using to make decisions, and this exercise is a more granular reforecast on the next 15 months (you’ll see why I say 15 and not 12 in a second).

But if it’s a complete overhaul, we’ve got you covered as well (I’ve been in your shoes).

This should be an export from your HRIS system (Workday, Hibob, Bamboo HR etc.). It should include every full time employee and contractor, with their department, base salary, and any bonus they are eligible for. Note: If you’re doing your planning in an FP&A tool like a Planful or Aleph, you’ll be able to pipe this in via API.

This list should be segmented into two buckets:

For all you FP&A folks, this is where you get to do some gambling.

You’ll need to make a call as to the probability of each position being filled before year end. And if it does not, you decide if it deserves an initial placeholder in the baseline for next year (e.g., it will still get filled at some point).

The first bucket will have a higher close percentage applied than the second, as the time to open and fill a role likely pull you into the next year.

This piece of advice is critical: Where I’ve seen budgets fall off the rails is when open headcount get “trapped” in no man’s land.

They either:

The net effect of both scenarios is you eventually create an additional headcount out of thin air that wasn’t contemplated.

We’ll discuss this more in Part III of our series, but that’s why budget envelopes for the following year need to be presented as a “theoretical max to not exceed” instead of a “number of additional heads”, to capture anyone who gets caught in the middle.