How to Give Your Rolling Forecast Teeth

How to Give Your Rolling Forecast Teeth
Contents

Most FP&A teams need 8 - 20 business days to turn around revised forecasts. 

This means a miss in January isn’t reflected in a rolling forecast until halfway through February at best. If you want to make changes to your February plan, you can’t—most teams have already spent their budget by then.

That leaves March. But every go-to-market team swears the last month of the quarter will be the best month. You can’t touch their spend because it’s “essential.”

So the earliest you can adjust your plan is April. That’s three months to translate a forecast into action.

Why does it take so long to react?

The FP&A monthly cadence

These are the broad strokes for most startup FP&A teams:

Business Days:

  • (Business) Days 1 - 3: Analyze preliminary revenue & headcount costs
  • Days 4 - 5: Review revenue forecast with sales & marketing
  • Days 6 - 7: Review revenue forecast with C-Suite and “lock”
  • Day 14 (+/- 7 days): Close the books
  • Day 15 (Close + 1): Re-forecast with actuals, and lock the forecast 
  • Day 16 (Close + 2): Distribute monthly reporting & KPIs
  • Day 17 (Close + 3): Board update
  • Day 18 - 19 (Close + 5): Re-plan budgets
  • Days 20 (Close + 6): Communicate adjusted budgets

While mature FP&A teams (Fortune 500 or pre-IPO) can close the books within 5 - 10 business days, most finance teams are strapped for resources. Close can take up to 20 business days, leaving no time to re-plan budgets within the month.

No matter what size your organization is, you have a problem. Either limited resources or business pressures force you into a quarterly cycle. 

There are four core issues underlying this dynamic. You:

  1. Spend too much time processing data
  2. Analysis is done in a “crunch”
  3. Don’t spend enough time communicating with stakeholders
  4. Manage plans retroactively 

Too much time spent processing data

There is a clear difference in how you manage revenue and expenses.

You can gather “good-enough” revenue data to run a forecast, without waiting for the books to close. Source data from CRMs, payment portals, and receivable portals is easy to extract. And most come with adequate checks to validate the accuracy of the data.

Expenses, on the other hand, are a mess.

Often, the data is just missing. Expense reports are not submitted on time. And there is always an unreported invoice or two hidden in your marketing director’s inbox.

When you do get raw expense data, it’s poorly tagged. Expenses are miscoded. You have no idea what is in-policy and what isn’t. And invoices often need more context to determine the appropriate accrual schedule.

Today, your finance team solves this problem with brute force. “Closing the books” means manually collecting missing data, cleaning it, and transforming it into a usable format.

Manually fixing poor expense data delays your budget planning process.

Crunch-time analysis

The delay in processing expense data has a waterfall effect. Your FP&A team will face a crunch because of an inevitable fixed deadline. 

Your FP&A team is crushed between fixed deadlines and delayed expense reporting.

Some months, you need to deliver analysis for a board meeting. Other months, it’s balancing “day-to-day” analysis with annual planning. At least half the time, the business needs a fast answer to a material forecast miss. 

Whatever the reason, it is impossible to deliver effective analysis without adequate time.

Compare your revenue forecasting process with budget planning.

Because you can obtain revenue data quickly, you can talk to go-to-market leaders for context before running your own analysis. With this context, you can present viable options to stakeholders and get their buy-in. Good analysis requires collaboration. 

Crunch-time budget planning does not give you time to meet with stakeholders before you build a plan. You only have the data, not the context. And by making decisions without their input, you don’t have their buy-in. There’s a reason 52% of CFOs and department leaders believe their relationship is broken.

You don’t spend enough time communicating budgets

The delay in processing expense data cascades through your entire month. After re-planning annual budgets without input, you end up communicating them without context.

Over 65% of budget owners are surprised when they see their budgets. While they were included in the revenue re-forecast, they have zero visibility into expenses. 

94% of budget owners track expenses in a system separate from finance. The result: 57% of spend ends up disputed.  

Without explaining the details of essential vs. non-essential spend, or the finer points of accrual accounting, it’s easy for sound financial decisions to seem like arbitrary cuts. 

And if your budget owners aren’t bought in, it undermines your ability to get quality input the following month.

This is all before we even get to the important question: even if you had perfect data, how do you actually control spend?

You manage spend retroactively

The honor system. That’s how your company controls spend today.

Even if you had the perfect budget, with complete buy-in from stakeholders. They are forced to manage spend with emails and spreadsheets. 

They do not have visibility into what exactly their team is spending on, until after it’s spent. Even if your budget owner has a strong desire to stay on budget, their only option is a bad one. 

94% of budget owners maintain records independently from finance. They collect expenses from their team via email and spreadsheets. For the entire month, they have to collect this information through manual processes. 

The sheer amount of time spent can add up to a full headcount each month. Not to mention the conflict. Budget owners’ records do not match finance records. The finer points of accrual-based accounting are usually to blame.

And all of this is after the fact. You don’t know what was spent until a week, or a month after it happened. The only ways you can protect your company from out-of-policy spend are painful:

  1. Purchase orders on large invoices
  2. Threatening non-reimbursement on employee expenses

Both of these options destroy the relationship between finance and everyone else. And they don’t even work. Employees actively avoid painful processes, creating even more problems:

  1. Surprise invoices appearing out of nowhere
  2. Active manipulation of budgets by post-dating contracts
  3. Under-utilization of perks and stipends

The way you work is broken

To recap. You spend too much time processing expense data. This puts a time crunch on your monthly analyses, pressuring you to make plans without budget owner buy-in. This crunch prevents you from communicating plans effectively too. And your entire budget control process is built on trust and the honor system.

How does Lola.com fix this mess?

Lola.com makes three key interventions:

  1. Provides clean expense data in real-time
  2. Enables effective communication of budgets
  3. Empowers budgets owners

Get clean expense data in real-time

Before Lola.com, you had to wait until after the financial close to use expense data. Information submitted via expense reports or invoices was always incomplete or inaccurate.

With Lola.com your team can run forecast and budget analyses independently from the month-end close. Lola.com gives you clean expense data in real-time.

We do this by eliminating expense reports and automating accounts payable.

Expense reports are replaced by driving the adoption of corporate cards. 

Every transaction made with a Lola virtual or physical card is verified against policies and budgets in real-time. If approved, every transaction is automatically categorized to the right expense category and GL account. 

Invoices follow a similar process. Invoices are verified in real-time, and automatically tagged to the correct period, vendor, budget, expense category, and ledger account. 

With Lola.com you can start your budgeting process independently from the close process. This unlocks dramatic changes along the rest of your monthly cadence. Especially for smaller finance teams.

And an added bonus—Lola.com can speed up your month-end close. Our QuickBooks integration enables you to push expenses straight to your ledger at the click of a button. 

Communicate budgets effectively

Before Lola.com, you were crunched for time. You did not involve budget owners in the planning process. And you did not spend enough time explaining the rationale behind budget changes.

After Lola.com you have the time and the tools to communicate effectively. 

With clean expense data on Day 1, you can start the budget planning process independently from your financial close. 

With a longer timeline, you can get input from your budget owners before you replan budgets. 

And with Lola.com’s budgeting tools, you can present updated budgets in a user-friendly web application, instead of an Excel spreadsheet.

The biggest benefit is agility. Spreadsheets and emails quickly become stale. If budgets need to be updated, it needs to be presented in a new spreadsheet, and a new email. And there is no way to track expenses in real-time without significant manual effort.

With Lola.com, you can change budgets as often as you want. Did marketing get approval for an incremental paid spend? Done. Sales needs to pull forward their software budget by three months? Easy. 

Spend against budgets is tracked in real-time. Every invoice and card transaction is mapped to a budget automatically. This completely eliminates the hours budget owners spend tracking their own expenses. And it eliminates disputes—the rest of the company finally sees the same numbers as finance. In real-time.

Even better—you are guaranteed to stay on budget. Every transaction is verified against budgets and policies before it clears. It’s impossible to accidentally overspend on Google Ads, forget to cancel an auto-renewal, or get charged by a vendor unknowingly. 

Real-time budgets build trust.

Empower budget owners

Your budget owners do not have the tools they need to manage or control budgets effectively. 

While your spreadsheets and emails may seem clear, many budget owners are not spreadsheet savvy. What is a core skill in your role is a “nice to have” in theirs. 

And even if your budget owners are spreadsheet savvy, their teams probably aren’t. Budget owners must take your program budgets, and translate them into tactical ones. One “marketing program budget” to you is actually 10 budgets to your Marketing Director. 

Lola.com gives your budget owners the visibility and tools to manage their budget.

Finance can communicate changes via a top-level program budget. With sub-budgets, managers can create as many as needed. Each one is mapped to the appropriate expense categories and assigned to the right people on the team. 

Virtual cards enable everyone to exercise even more control. By creating a card and limit for every vendor, you can pre-allocate your budgets and avoid budget-breaking mistakes.

Lola.com empowers your budget owners.

Act quickly

Lola.com enables you to turn your rolling forecast into action quickly. Instead of waiting until the next quarter, you can make adjustments in days. All with clear communication and buy-in from stakeholders. 

Start the planning process early with clean expense data. Communicate effectively with real-time budgets. Empower budget owners with easy-to-use software and controls. 


About the Author: Sagar Velagala
Sagar is the Director of Growth at Lola.com. Before this, he worked in analytics, finance, and operations roles at companies like The Boston Beer Company and HubSpot.